Economy & Trade, Financial Crisis, Headlines, Labour, North America

ECONOMY-US: Congress Deaf to Pleas of Panicky Auto Execs

Bankole Thompson

DETROIT, Michigan, Nov 20 2008 (IPS) - The vote on a 25-billion-dollar loan for cash-strapped General Motors, Chrysler and Ford Motor Company – known as the “Big Three” U.S. automakers – has been put on hold by the Senate, after Congressional leaders chastised industry executives for failing to heed early warnings of crisis and for flying to Capitol Hill on private jets to beg for tax dollars.

In Detroit and other cities where the livelihoods of many families have long being tied to the automotive industry, talk of a bailout in the form of a loan to the carmakers has been framed as a matter of “life and death”, especially in light of a recent report from the Centre for Automotive Research (CAR) estimating that if the automotive industry were allowed to collapse, three million jobs would be lost in the U.S. economy.

President-elect Barack Obama said in his first post-election interview on CBS’s 60 Minutes programme that he supports an assistance package for the auto industry – but one that has built-in protections for workers and suppliers, among other things.

“Our model estimates that a complete shutdown of the Detroit Three U.S. production would have a major impact on the U.S. economy in terms of lost wages, reductions in social security receipts, personal income taxes paid, and an increase in transfer payments,” said Sean McAlinden, CAR’s chief economist, who directed the study.

“The government stands to lose 60 billion dollars in the first year alone, and the three-year total is well over 156 billion dollars,” he said.

Treasury Secretary Henry Paulson, a former chief executive officer at Goldman Sachs who strongly advocated – initially with no strings attached – for a taxpayer bailout of Wall Street companies like insurance giant American International Group (AIG), is now vehemently opposed to a loan for the automotive industry that comes from the 700 billion dollars approved for Wall Street, a move also supported by the White House.

“Our industry needs a bridge to span the financial chasm that has opened up before us,” GM CEO Rick Wagoner urged the Senate Banking Committee this week.

In May 2007, in the early stages of his presidential run, Obama criticised the Big Three and said they should invest in clean energy and alternative fuel vehicles that would reduce dependence on foreign oil, in a speech before the influential Detroit Economic Club.

“For years, while foreign competitors were investing in more fuel-efficient technology for their vehicles, American automakers were spending their time investing in bigger, faster cars. And whenever an attempt was made to raise our fuel efficiency standards, the auto companies would lobby furiously against it, spending millions to prevent the very reform that could’ve saved their industry,” Obama said in his DEC speech. “Even as they’ve shed thousands of jobs and billions in profits over the last few years, they’ve continued to reward failure with lucrative bonuses for CEOs.”

He added, “The consequences of these choices are now clear. While our fuel standards haven’t moved from 27.5 miles per gallon in two decades, both China and Japan have surpassed us, with Japanese cars now getting an average of 45 miles to the gallon. And as the global demand for fuel-efficient and hybrid cars have skyrocketed, it’s foreign competitors who are filling the orders. Just the other week, we learned that for the first time since 1931, Toyota has surpassed General Motors as the world’s best-selling automaker.”

Since Obama’s speech, there has been a growing consensus that the auto industry must tackle its own issues of competing globally and any possible loan now is being predicated on the assurance that the industry would change its business model.

George L. McGregor, president of United Auto Workers Local 22 in Detroit, whose members at the Hamtramck/Detroit GM plant manufacture the Cadillac DTS, told IPS in an interview that those opposed to the bailout need to look beneath the surface.

He said Congress should consider the devastating impact a bankrupt automotive industry could have on millions of workers and thousands of retirees whose healthcare continues to be provided by the automotive industry through the payment of monthly premiums.

McGregor, whose work at GM has spanned four decades starting in 1968, when he first joined the automotive company at age 20 after returning from the Vietnam War, questioned the wisdom of denying the carmakers a 25-billion-dollar loan that would protect millions of families from going homeless and hungry – while taxpayers are being made to finance the war in Iraq at the tune of 10 billion dollars a month.

“I can’t understand how we can spend 10 billion dollars a month in Iraq and yet we can’t find money to save American jobs in the auto industry,” McGregor said. “The money we are spending in Iraq, we are not getting it back. But we are willing to spend that much in Iraq where people are dying and still would not loan the auto industry money that they will pay back. The people running this country are absolutely backward.”

He said auto workers are beginning to feel the pinch of the crisis within the industry.

For example, union shops are laying off staff members and forcing essential positions to a part-time basis. Other necessary amenities, such as toll-free numbers for retirees and those who are not mobile to call in and discuss their monthly health benefits with union stewards, are being eliminated, he said.

“This same Congress voted for the war in Iraq, gave AIG a bailout and no one is saying anything about it,” McGregor said. “I am not saying GM did not make its own mistakes, but let’s face it, if they don’t give the loan there will be a ripple effect for retail stores where most of our workers shop.”

A source familiar with the negotiations in Washington said part of the delay is that the Republicans are exploiting the crisis to break down the UAW by tailoring the bailout to allow for a renegotiation of the labour agreement with all three carmakers.

“They [The Republicans] don’t want the unions to exist. The last union contract we had was competitive. That’s the other piece in this difficult negotiation,” an official said.

UAW President Ron Gettlefinger who was also before Congress alongside GM’s Rick Wagoner, Chrysler’s Robert Nardelli and Ford’s Alan Mulally, addressed the issue of wages and benefits in his testimony.

“Because the recent contracts negotiated by the UAW are now competitive with the rest of the auto industry in the U.S., we do not believe there is any justification for conditioning assistance to the Detroit-based auto companies on further deep cuts in wages and benefits for active and retired workers,” Gettlefinger said.

“We would also note that in cases where the Treasury Department has acted to rescue financial institutions, it has only imposed restrictions on executive compensation. It has never mandated cuts in wages or benefits for rank and file workers and retirees,” he added.

Marcus Amick, a national automotive industry analyst, said a bailout must come with strings attached.

“Any bailout plan needs some serious stipulations,” Amick said. “At this point it’s imperative for their survival and the economy on a whole that they get help from the federal government. Just the thought of a company like GM or Ford having to shut its doors is scary considering how many companies and people depend on them for work.”