Friday, Jul 29, 2016
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Jack Lessenberry

Anger grows in Michigan over Southern opposition to auto loans

DETROIT - Mark Dobias, a small-town lawyer from Michigan's Upper Peninsula, hasn't always been the domestic auto industry's biggest fan. But when it became clear that a few senators from places like Alabama and Louisiana were determined to do anything to block any aid to General Motors, Chrysler, and Ford, it got to him.

"This is regional economic warfare. Pure and simple. The wounded Rustbelt being bayoneted in the throat by economic interests in the East and Sunbelt with aid from their political toadies," he wrote me. He's normally a laid-back guy with a puckish sense of humor, but the hypocrisy was, he said, a bit much.

"Michigan is a great state. It has good people - hard-working people who make things. The nation has gained from its natural resources and industrial capacity. And now we will remember this in the same way that Georgia remembers William Tecumseh Sherman," the union general whose armies laid the Southern state waste.

What was highly unusual, in Michigan's quarrelling political culture, was the unanimity with which the state's various factions united in support of trying to help the automakers - and disdain for the senators who would prevent that effort.

The Detroit Free Press wrapped its entire paper in a full-page ad supporting the auto industry, and announced it was sending a copy to every member of Congress.

The thoroughly Republican Detroit News normally denounces any government aid program. But not this time. In a highly rare front-page editorial, it pleaded "we urge the Senate, please give Detroit a chance to make things right we appeal to Senate Republicans to act not in support of the domestic auto makers, but in the interest of the national economy and national security - we still need an arsenal of democracy."

True, the News did publish a piece by freshman Sen. Bob Corker (R., Tenn.) that called on Congress to impose much harsher conditions on the companies and their workers as a precondition for any aid. He also called for more involvement by Congress in actually running these companies. But the newspaper shot back, that "like most of Washington, Corker is ill-informed of the forces roiling the domestic auto industry." There was clearly some truth in that.

Whatever your politics, some of the questions asked of the Big Three CEOs by congressmen during last week's hearings seemed ill-informed, and ignorant of economic reality.

"Even many Democrats just don't get it," Gary Peters, a former financial analyst and now a newly elected Democratic congressman from Oakland County told me earlier this week. "They say, well, they should just declare bankruptcy and reorganize," he said. "They don't understand."

What they especially don't get, economists familiar with the industry agree, is that either a bankruptcy filing or a straight liquidation of any of these companies would end up costing the taxpayers more than any bailout.

Should General Motors declare bankruptcy, for example, that would mean that its legions of parts suppliers would stop getting paid.

Many of them are barely solvent themselves - and would speedily go out of business. Trouble is, the same suppliers often supply all three auto makers, and Toyota and Honda as well.

"You could pretty swiftly see the ripple effect - everything could shut down" in a short time, said Sean McAlinden, chief economist for Ann Arbor's nonprofit Center for Automotive Research.

Tennessee's Senator Corker understands that much. In his Detroit News article, he noted that "Nissan and Volkswagen are also heavily invested in Tennessee, making us an industry hub with a huge supplier base that could be affected."

As in, put out of business. What if the auto companies in fact do fail? Economist Patrick Anderson is scarcely a tax-and-spend, big-government liberal. He worked for years for John Engler, Michigan's most conservative governor since World War II.

This week, his Anderson Economic Group released a study that said a bankruptcy by two of the automakers, presumably General Motors and Chrysler, "would inflict much higher costs to United States taxpayers, up to four times the amount of the proposed federal bridge loans." That would come in part because of the loss of tax revenue.

The Anderson study was conducted in conjunction with BBK, an international economic advisory firm. Kriss Andrews, BBK's director, echoed that bankruptcy "likely would precipitate a complete shutdown of nearly all auto production in the U.S. for some time. The other direct economic costs would be similarly distressing," including further disruption of the credit markets.

There was bitterness, too, in Detroit at the men blocking the bailout. Some cattily noted that when Sen. David Vitter (R., La.) vowed a filibuster, it was the first time he had gotten national press attention since being linked to a Washington prostitution scandal.

Sens. Richard Shelby (R., Ala.) and Corker both represent states where foreign, nonunion automakers have significant operations. Mr. Corker, a freshman who won a narrow victory in 2006, is insisting that the United Auto Workers accept wage cuts so that workers make no more than nonunion workers in the South, such as the Nissan employees in his state.

Alabama, a right-to-work state, has granted vast concessions to win plants operated by Toyota, Mercedes-Benz, Honda, and Hyundai. Mr. Shelby, who is 74, is gearing up for what may be an expensive and challenging re-election campaign in two years.

Originally elected as a Democrat, he switched to the GOP after the Republicans unexpectedly won control of Congress in 1994.

Few in Michigan or Ohio had heard of these men a month ago. But in the next few days they will likely play a key role in deciding whether the domestic auto industry is given a chance to survive.

Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade's ombudsman, writes on issues and people in Michigan.

Contact him at: omblade@aol.com

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