What is Richard Shelby’s Problem?
By Chris Haak
With word that the US House of Representatives has passed an auto industry rescue bill last night, the next step, of course, is to have the same bill passed by the Senate. As Kevin alluded to at the end of his earlier article, unlike in the House, where a simple majority is all that is required to pass a vote, things are more complicated in the Senate, where the body has a tradition of allowing unlimited debate until 60 senators vote to end that debate. If the debate goes on in perpetuity, that’s called a filibuster, and either the threat of a filibuster – or an actual filibuster – could kill this legislation.
Democrats, along with the Bush White House, were largely behind the passage of the House bill, but the Democrats have a larger majority in the House than they do in the Senate, not to mention the whole filibuster factor. And the senator who’s probably most likely to filibuster is Richard Shelby (R) of Alabama, who has consistently been a vocal critic of the idea of any kind of rescue plan, loan, or bailout for the auto industry. Most recently, he said, “I’m going to oppose the package because I think this is just the down payment on billions and billions to come. These are failed or failing companies.”
Can we take Senator Shelby at his word – that his opposition is purely on ideological grounds – or is there something more than meets the eye here? Let’s take a look.
Alabama, the state that he represents, is one of the largest vehicle producers in the South. Unfortunately or fortunately, depending upon your perspective, this vehicle production does not consist of GM, Ford, and Chrysler vehicles, but instead transplants – Mercedes-Benz, Hyundai, and Honda. Toyota also has an engine plant in Alabama. These three companies would not have come to Alabama to build their plants – with scores of suppliers in tow for each of them as well – without substantial incentives, whether those be infrastructure, tax, or other incentives. For example, the state of Alabama gave Hyundai approximately $253 million in incentives toward its $1 billion facility. Honda got $158 million from Alabama, and Mercedes-Benz received $253 million. Not quite the amounts that we’re talking about in the GM-Ford-Chrysler rescue plan, but Senator Shelby’s home state does seem to favor using taxpayers’ money to “help” fairly successful companies. So, presumably Shelby is OK with giving money to companies that – let’s face it – didn’t need the money, but against giving it to companies that really do need it.
The argument that these companies are failing or failed is partially true, but it’s also naive to think that consumers will continue to purchase new vehicles from a company in bankruptcy proceedings at a similar rate to what they’ve historically done (GM admitted that its November showroom traffic was impeded by talk of the company’s potential doom, and it hasn’t even declared bankruptcy).
Shelby is also naive if he believes that his apparent pro-free market stance will help – or at least not hurt – the manufacturers and supplier base in Alabama. While Mercedes-Benz, Honda, Hyundai, and Toyota are not as intertwined with the Big Three’s supplier network (which has 80% overlap according to Ford’s testimony), scanning a list of Tier One suppliers that are members of the Alabama Automotive Manufacturers Association members, there are several recognizable names such as Continental, Federal-Mogul, Johnson Controls, Lear Corporation, Michelin, Navistar, and ZF who do have facilities in Alabama and who would certainly be adversely affected – to the point of possible bankruptcy if any or all of the Big Three go down. Believe me, Toyota and Honda are terrified of a GM bankruptcy way more than they’re licking their chops at the prospect of increased market share, because GM’s suppliers are dependent upon GM purchasing their parts, and if GM isn’t purchasing any parts, that puts a big dent in their revenue.
Finally, if GM, Ford, and Chrysler fail, the ripple effects on the economy will be devastating. First all – or at least many – of their direct employees will lose their jobs. Then the suppliers will start to fail. Then the raw material providers. Then the small businesses in the surrounding communities as these former autoworkers can no longer afford to patronize the local pizza shop or corner drugstore. Eventually, fewer people will have money to buy new Hyundais, Hondas, Mercedes, and Toyotas. And that WILL hurt Alabama, saying nothing for the already-hammered economies of Michigan, Ohio et al.
I find it troubling that a US Senator – one of just 100 individuals so esteemed in the world – would put his ideological bent (at best) before his country’s financial health, or put his misguided attempt at protecting his [non-US] constituents by sentencing their competitors to death (at worst). Shelby is up for re-election in 2010, and I hope for his sake that I’m wrong and he doesn’t have blood on his hands for killing these former bastions of American industrial might, but if I am right, the voters of Alabama might need to bail him out of office in two years.
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