Should taxpayers in Alabama be required to bail out automakers whose plants are concentrated in Northern states like Michigan and Ohio?
That’s one question on which there’s bipartisan accord — at least among two of Alabama’s representatives in Congress.
Alabama is home to three Honda and Hyundai plants. And just across the state line in Georgia, a new Kia plant is set to open and will likely employ many Alabamans.
Sen. Jeff Sessions, R- Ala., told reporters Wednesday, “I can not imagine a real justification for a worker in Alabama who does not have any health insurance at his company to be taxed to maintain a Cadillac health care plan for somebody in Detroit.”
Honda and Hyundai, Sessions said, “are building steadily, and they are progressing steadily” even though they are being hurt by the economic downturn just like the Big Three U.S. automakers of Ford, Chrysler and General Motors.
But Sessions said he visited the Honda plant in Alabama recently and the company is changing its assembly line from the fuel-hungry Odyssey minivan to the more efficient Accord sedan in response to the demand for more-efficient cars. “Those are the kinds of things a smart company does, so they are gaining market share,” he said.
Alabama Democrat against bailout
In the new Congress that begins in January, Democratic Representative-elect Bobby Bright, the mayor of Montgomery, Ala., will represent the state's Second Congressional District which is home to a Hyundai manufacturing plant and a number of supplier firms. There are 6,500 auto and car-related jobs in Bright's district.
Bright opposes the proposed taxpayer bailout of Hyundai’s competitors. “I don’t look favorably on it at all,” Bright said. “Generally, I came up the hard way, and no one ever bailed me out. I always had to stand on my own two feet.”
The chief executives of GM, Chrysler and Ford, along with United Auto Workers President Ron Gettelfinger made their plea for help Wednesday in testimony to the House Financial Services Committee, after making their case Tuesday before the Senate Banking Committee.
Detroit’s CEOs got a mostly frosty reception.
With the Senate unable to agree Wednesday evening on how to proceed, a vote on a $25 billion “bridge loan” to the Big Three automakers seemed increasingly unlikely before Congress leaves town this week.
The struggle over whether Congress should make the loan is a classic regional battle: North vs. South, unionized states like Michigan vs. mostly non-union ones like Alabama.
And while senators and House members represent different ideologies and political parties, above all they represent their states and their districts.
What’s good for Michigan may not be good for Alabama.
“There are some states that might think there’s a competitive advantage for them if the Big Three don’t make it,” Sen. Carl Levin, D- Mich., a Big Three ally, told reporters Tuesday.
More complex than North v. South
But it’s more complicated than Alabama gaining at Michigan’s expense, or North vs. South.
Kentucky, for instance, has a Toyota plant, two Ford plants and a GM plant.
How does a senator from Kentucky balance the interests of the Toyota workers and the Big Three employees in his state?
Sen. Jim Bunning, R- Ky., who is up for re-election in 2010, said Wednesday, “It’s not a balancing act. It’s whether the federal government should intervene in the private-sector economy. And I believe it should not. I am very concerned that people as hard-headed as the three people who spoke to us yesterday would not have a plan in place and not have any concession to make, but they would just want the money so they can burn through it. That’s unacceptable.”
And if Chrysler and General Motors go into bankruptcy or liquidation?
“I think that’s probably the best thing that can happen,” Bunning replied. “Then there will be a reorganization and they’ll be able to jettison things they couldn’t ordinarily jettison, like health care benefits, like pension benefits and there will be someone to pick those up like the Pension Benefit Guaranty Corp. And then they will be able to restructure their salaries to get more in line with foreign producers and they may come out of bankruptcy a heck of a lot better off than they go into it.”
Sessions of Alabama generally agrees with this assessment.
Bunning added that Toyota, with 9,000 employees at its Georgetown, Ky., plant “is having trouble, too. They reduced output 14 percent and they reduced all their temporary employees, about 600 of them.” But he said that with a line of hybrid SUVs Toyota is “geared up way ahead of the SUV for the gasoline crunch.”
Big Three 'overpromised'
The Big Three, Bunning said, “overpromised and couldn’t deliver. They overpromised benefits, they overpromised and didn’t have the product to produce the amount of money necessary to pay them.”
Economists and auto industry experts might or might not agree with Bunning’s assessment, but what matters is that he has a vote.
Senate Majority Leader Harry Reid would need 60 votes to move ahead with a debate and vote on the $25 billion loan. As of Wednesday there was no sign that Reid has the 60. Bunning and many of the Senate’s 49 Republicans will vote “no.”
As he tried to round up support for the Big Three loan, Levin told reporters, “There is strong support for bridge loans for the auto industry because of the huge impact of a collapse of the domestic auto industry for almost every state and on the economy as a whole.”
When a reporter pointed out that some critics want the United Auto Workers to make more concessions in pay and benefits, Levin said, “Take a look at what the unions have already done,” but he acknowledged that “there’s a lot of people who want the unions to give more back.”
Levin and other Big Three allies must figure out whether there is sufficient support for “carving out” $25 billion for the Big Three from the $700 billion Troubled Asset Relief Program or whether to use a provision in an energy bill Congress passed this year that is designed to help the domestic auto industry retool and shift to alternative fuel and hybrid vehicles.
A relatively small loan
Levin said $25 billion is a relatively small amount in the context of the financial industry's problems. He noted the amount is just 4 percent of the $700 billion Congress allocated to the financial industry and one-sixth of what the government has shelled out to keep troubled insurance giant AIG afloat.
And Levin said Honda, operating in Alabama, “has cheaper labor, younger labor, no legacy costs (for retiree health care) — younger work force means lower medical costs. They have certain competitive advantages that are not the result of brilliance or greater skill.”
He added that “there are supplier companies in at least half the states that would be really harmed by bankruptcy of the Big Three — including suppliers that supply to some of the transplants like Hyundai and Nissan.”
But Levin faces skeptics like Sen. Bob Corker, R-Tenn., who grilled the Big Three executives at Tuesday's hearing.
Corker is in a similar position to Bunning: his state has both a GM plant and a Nissan plant.
Corker is opposed to a blanket bailout for the Big Three. “If we we're going to fund, and I’m not yet in favor of that, if we were doing this prudently, what we do is fund the ones that were going to succeed. Each of them is in very different circumstances.”
He added, referring to the GM plant in Tennessee, “If I were to look at it only parochially, I would say the GM plant in Tennessee is very competitive. … My sense is it would be one of the survivors.”
Bankruptcy and reorganization “could possibly be better for them," he said, because they would be able to get out of some of their legacy costs.
A so-called prepackaged bankruptcy, which would be prepared in concert with creditors, “would allow these companies to take the strengths they have and carry on and shed the weaknesses they have,” Corker said.