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General : Regional split at root of auto vote
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From: MSN NicknameArmchairConstant  (Original Message)Sent: 12/11/2008 10:11 PM

Regional split at root of auto vote

Bailout foes from states luring foreign makers

By Michael Kranish, Globe Staff  |  December 10, 2008

WASHINGTON - With Democratic congressional leaders and White House officials agreeing yesterday on $15 billion in emergency loans to US automakers, one of the most vociferous foes is Senator Richard Shelby, an Alabama Republican who says the Big Three automakers "can't compete" and who has threatened a filibuster to stop the deal.

Shelby's position is not merely that of a fiscal conservative. His home state has provided millions of dollars in taxpayer subsidies to lure <ORG idsrc="NYSE" value="HMC">Honda</ORG>, Hyundai, and Mercedes-Benz to build huge plants there. Indeed, some critics believe that without the incentives from Alabama - and similar tax breaks given by a number of other states to a dozen foreign automakers - the Detroit companies would not need a federal bailout.

The foreign-based automakers have received relatively little attention during the debate over the auto bailout bill because they have not asked for money from Con gress. Yet their role is immense: In 2007, for the first time, foreign firms produced a majority of cars sold in the United States. While Detroit's auto industry is shutting plants and slashing union jobs, the foreign-based auto companies have been booming, particularly in the South, with new nonunion plants slated to open in Tennessee and Georgia.

House Financial Services Committee chairman Barney Frank of Massachusetts, who is playing a key role in hammering out a loan deal, said in an interview that some opponents are "completely hypocritical" because they back local tax incentives to lure foreign companies that now pose some of Detroit's stiffest competition. Frank also denounced those members of Congress who oppose the assistance for the Detroit automakers as a matter of fiscal prudence at the same time they fight for agricultural subsidies for their states.

Shelby represents the views of many members of Congress who say they oppose a taxpayer bailout and plan to join him in trying to defeat the measure. In an interview yesterday, he defended his support for tax breaks for foreign auto companies, which he praised for offering cars that the public wants. "They know what they are doing running efficient plants," said Shelby, the top Republican on the Senate Banking Committee, which held hearings on the bailout last week.

Shelby bristled when asked why he opposes the loan to Detroit automakers but backs farm subsidies, which do not have to be repaid. "I don't say that is good policy," Shelby said. Asked why he voted for subsidies if he does not think they are good policy, he responded that "there are some good things" in the farm bill.

The Frank-versus-Shelby argument is a microcosm of the complex politics and competing interests at stake as Congress prepares to vote on the auto loans. It emphasizes what has become a geographic - not just partisan - divide: lawmakers from states with foreign-owned auto plants tend to oppose the measure, while those from the Upper Midwest and strong union states tend to back it.

While the foreign automakers could make further gains in the US market should the Big Three falter, they could also be hurt because many suppliers do business with both domestic and foreign companies and could go out of business if one of the Big Three goes bankrupt.

"They are scared to death," said David Cole, chairman of the Center for Automotive Research, who met recently with representatives of foreign automakers. "They know how intertwined this all is."

The Association of International Automobile Manufacturers, which represents 14 foreign-based companies that sell cars in the United States, said it is not lobbying for or against the loans. "We do not oppose efforts like this to provide financial assistance to any automaker in need of such assistance at an unprecedented time like this," spokesman Kim Custer said yesterday.

Custer also said it was common business practice for states to compete for plants with tax breaks.

Senate Republican leader Mitch McConnell of Kentucky - whose state has a 7,000-employee <ORG idsrc="NYSE" value="TM">Toyota</ORG> plant - said on the Senate floor yesterday that he had reservations about the proposed legislation, which he said "fails to require the kind of serious reform that will ensure long-term viability for struggling automobile companies" and leaves the door open "to unlimited federal subsidies in the future."

The GOP caucus includes senators from Upper Midwest states who back the loans as well as those from Southern states who oppose them. Democrats, who narrowly control the Senate, generally support the measure, but need 60 votes to overcome a threatened filibuster.

The deal would provide the emergency loans as soon as next week and calls for a presidentially appointed "car czar" to oversee a sweeping restructuring of the companies. A breakthrough came yesterday when negotiators reached a compromise to require the czar to revoke the loans and deny any further federal aid to automakers that don't strike a deal with labor unions, creditors, and others to ensure their survival by next spring - essentially pushing them into bankruptcy.

Congress could vote on the plan as soon as today. <ORG idsrc="NYSE" value="GBM;GM;GMH;GMW;GXM;HGM;RGM;XGM">General Motors</ORG> has said that it would have to declare bankruptcy by Dec. 31 without a loan, and Chrysler has said it is in similar need. Ford said it does not need an immediate cash infusion.

James Rubenstein, a professor at Miami University in Ohio who coauthored a recent book, "Who Really Made Your Car?," said that the auto industry's problems must be viewed through the lens of an economic fight between regions.

For example, while Chrysler, Ford, and GM are shrinking facilities across the Upper Midwest, Alabama has been gaining jobs at an extraordinary rate due to the decision of the foreign automakers and their suppliers to locate in the state. The state's auto-related jobs have more than doubled from 21,545 in 2001 to 48,457 last year.

Rubenstein said Shelby is opposing the loan because "he is voting with his state's self-interest."

But Rubenstein said that while that may be good local politics, it is unfair on a national level. He compared helping the auto companies in the Upper Midwest to aiding the victims of Hurricane Katrina on the Gulf Coast. "This is a regional disaster issue," he said.

As recently as 1996, the Big Three sold about 70 percent of cars in the United States. But last year, for the first time, foreign companies took a slim sales lead, and they are projected to sell 56 percent of cars in the United States by 2011, according to the Center for Automotive Research in Ann <ORG idsrc="OTCBB" value="ARBR">Arbor</ORG>, Mich., which receives some funding from both domestic and foreign companies.

Of the cars sold by foreign-based companies, about half are assembled in US-based plants, with the rest imported from around the world. The foreign automakers established plants in the United States for two main reasons: to save on transportation costs, and to avoid the imposition of trade restrictions on imports.

It is difficult to ascertain the exact amount of tax subsidies provided to the foreign automakers because they are provided by so many localities and in different ways, including property tax breaks and corporate tax abatements. One study found that the total subsidies to foreign automakers exceeded $2 billion.

Alabama paid more up front per job in tax subsidies to the foreign automakers than Detroit is asking per job with the loans, said Cole of the automotive center.

Michael Kranish can be reached at [email protected]. Material from the Associated Press was used in this report. 

http://www.boston.com/news/nation/washington/articles/2008/12/10/regional_split_at_root_of_auto_vote?mode=PF