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Auto Makers Settle for Tough Love

By GERALD F. SEIB, The Wall Street Journal
November 25, 2008

It was a dose of tough love that President-elect Barack Obama offered the American auto industry Monday. America shouldn't let the auto makers "vanish," he said at a news conference. But the auto companies should get help, he added, only when they show a better plan for pulling out of their downward slide.

It seems the only love auto makers can get from Washington these days is of the tough variety -- and from some quarters they can't get even that. All told, the auto industry is seeing its political support crumple like a badly rusted fender.

The auto makers have themselves to blame for some of that problem. The Big Three's leaders showed up in town last week seeking help, without offering a coordinated recovery plan or many of those mea culpas for past sins that Washington loves to hear at times like this.

But there also are two big, bipartisan forces at work eroding political support for the auto makers -- forces not really within the control of the Big Three.

On the Democratic side, the auto industry's traditional political strength has been undercut by the rise of Western, environmentally minded leaders who don't see the auto companies as particularly important to their region, or friendly to their green causes. And on the Republican side, the industry's support has been compromised by the rise of foreign-owned auto plants concentrated in Republican-leaning states in the South, which actually stand to benefit if the Big Three American companies go down.

Taken together, those two factors help explain why AIG -- a company that doesn't even make anything shiny a lawmaker can lay a hand upon -- is getting more than $100 billion in bailout money from Washington, and Citigroup just got $306 billion of its troubled assets guaranteed by the feds, while an effort to provide a simple $25 billion bridge loan to America's iconic Big Three auto makers collapsed late last week. It is, in many ways, a bizarre anomaly.

That loan money still might come, of course, perhaps when lawmakers return next month for one last gasp before year's end. But there was a time when Democratic control of Congress would have created a lot more sympathy for the industry and the auto workers that power it.

Nowadays, though, the Democratic contingent in Congress is dominated less by lawmakers from the Rust Belt of the upper Midwest, and more by those from the West Coast, where the car of choice is no longer a Corvette powered by a Chevrolet V-8 engine, but a Prius powered by a Toyota hybrid engine.

California's Nancy Pelosi is House speaker. A fellow Californian, Henry Waxman, just last week ousted the auto industry's primary champion in Congress, John Dingell of Michigan, as chairman of the powerful Energy and Commerce Committee. At the same time, a third Californian, Xavier Becerra of Los Angeles, was named vice chairman of the party's House Caucus, a slot that opened up when Rep. Rahm Emanuel, from the industrial Midwest state of Illinois, became President-elect Obama's chief of staff.

On the Senate side, the Democrats' leader is Harry Reid, from California's next-door neighbor, Nevada. He helped head off at the pass Michigan's senators late last week when they tried to rush through that $25 billion loan to Detroit.

In short, politics for the car companies have grown shakier on the Democratic side. On the Republican side, meantime, the auto companies that seem most in favor these days don't have their headquarters in Detroit at all, but rather in Japan, Germany and South Korea.

Toyota, Honda, Kia, Mitsubishi, BMW and Daimler AG -- all have established auto assembly plants in the U.S. in recent years, and those plants are disproportionately situated in the low-cost, little-unionized states of the South.

That means many of those auto plants now are enriching states dominated by Republicans. Of the 11 states that have or are planning foreign-owned auto assembly plants, seven were carried by Republican Sen. John McCain in this year's presidential campaign. An eighth state, Indiana, was carried by Mr. Obama, but has traditionally been Republican-leaning as well.

That has built a natural bond between the foreign auto makers with their highly competitive plans and pro-business Republican leaders. "The foreign auto companies are very wise in how they deal with lawmakers," says Ron Bonjean, a Republican political consultant who was a top aide to former GOP House Speaker Dennis Hastert.

As a result, Republicans often sound as if they simply don't see Detroit in heavily Democratic Michigan, as the heart of the new American auto industry.

"Both management and labor at the Big Three have pay and wage scales that are substantially higher than their competitors," declared Rep. Spencer Bachus of Alabama, home to three foreign auto assembly plants, at last week's hearing with American auto executives. "That's not being anti-management or anti-union. It's just being truthful."

The silver lining for the auto companies is that Mr. Obama does sound like somebody who really wants to be on their list of friends. That would be good for the Big Three, because otherwise that list has grown shorter.

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