With Congress on the brink of lending $15 billion in taxpayer money to Ford, Chrysler and General Motors, some legislators are worried that those funds will end up overseas.
Congress and the White House struck a tentative deal late Tuesday night, but the plan faces substantial obstacles from Republicans.
Will Detroit's "Big Three" use the loan to buy foreign-made components or expand operations abroad?
Rep. Don Manzullo, R-Ill., whose Rockford-based district is a center of the U.S. tool and die industry, asked Ford chief executive officer Alan Mulally at last Friday’s House Financial Services Committee hearing whether he would "be buying more fasteners and tool and dies from China” to use in manufacturing Ford vehicles.
“We operate all around the world,” Mulally replied.
Manzullo asked, “Does that mean we’re going to lose more of the fastener and tool-and-die industry in the United States because you’re going to be buying that stuff from the Chinese?”
“Absolutely not,” insisted Mulally. “The plan that we presented grows our business in the United States.”
But what about U.S.-based tool-and-die firms and parts suppliers, Manzullo asked.
“Are you going to use U.S. taxpayers’ dollars to source more tool-and-die equipment and fasteners from overseas facilities for American manufacturers?”
“No,” Mulally finally replied.
Can Congress restrict bailout money?
In a draft of the auto industry loan legislation that Congress will likely vote on this week, there was a provision designed to deter the Detroit automakers from spending their money outside the United States. It would require them to report to an overseer, appointed by the president, any investment or purchase they made in excess of $25 million.
But President George W. Bush’s aides reportedly oppose that provision as micromanaging.
It isn’t clear if any “invest in America” requirement will be in the version of the bill the House and Senate will vote on.
Lawmakers in both parties want to ensure that the money lent to Detroit is spent only in the United States.
“We’ve got to make sure this money us invested in the U.S. and not outside the country,” said Sen. Jon Tester, D-Montana, a member of the Banking Committee who questioned the auto company executives at last Thursday’s hearing
Another committee member, Sen. Evan Bayh, D-Ind., said a “spend only in the United States” provision “should be an absolute requirement. If U.S. taxpayers are putting up the money, it ought to go to benefit U.S. workers and U.S. communities.”
But since funds are fungible and the Big Three have plants in foreign countries, as well as foreign parts suppliers, it’s not clear how this requirement could be enforced.
Richard Curless, the chief technical officer of the largest machine tool company still located in the United States, MAG Industrial Automation Systems, is one witness to the damage that the Detroit Three can do by buying their components outside the United States.
Tax incentives to buy American
On Tuesday, testifying to the House Select Committee on Energy Independence and Global Warming, Curless urged Congress to pass tax incentives to nudge the Detroit automakers to buy from his firm and not from its Japanese competitors. “It is difficult to work with them because they buy cheap parts from the Far East,” he told the committee.
“I’d like to see Congress require them to buy the technology from the United States. You’re not going to change everything all at once to say ‘you can’t get anything offshore,’ but there ought to be some incentives — that’s what we’re looking for,” he said in an interview after his testimony.
MAG Industrial Automation Systems has plants in Illinois, Michigan, Missouri, Kentucky, Wisconsin and California.
The company also supplies equipment to design and build Boeing aircraft and the Joint Strike Fighter built by Lockheed Martin. “We’re going to take that technology and move it to the automobile industry,” Curless said Tuesday. “Your cars in the future are going to be made of very much lighter weight composite material.”
He added that while the Detroit firms will buy from MAG Industrial’s Japanese competitors, the Japanese car manufacturers “are not going to buy from us. Japan is very nationalistic in what they do.”
MAG Industrial has two plants in China which, he said, make “mostly machine tools for the China market.”
Peter Morici, professor of international business in the University of Maryland business school, said after his testimony to the House committee Tuesday that if Congress creates subsidies for Detroit firms to build the next generation of more fuel-efficient vehicles, it ought to require that the research and development and initial production be done in the United States.
“Whatever is developed here the first production runs should be done here,” he said.
Although European Commission President Jose Manuel Barroso has raised the prospect he could file a complaint under World Trade Organization rules about the rescue package, Morici said, “You only have a problem in the WTO if someone can prove a harm. I don’t think anybody will be able to prove a harm.”