The Politics and Economics of the Auto Bailout

The Senate logjam over a $14 billion “bridge loan” for the Big Three to tide them over until the end of March may be breaking. Republicans are demanding the equivalent of Chapter 11 bankruptcy as a condition — creditors must accept 33 cents on the dollar they’re owed, and workers must accept wages and benefits that match those of American workers in foreign-owned autoplants in the U.S. Democrats are at this hour negotiating a compromise.

Background: There’s a new Civil War going on when it comes to automaking in America. Japanese, Korean, and German automakers are now building 18 auto assembly plants in the United States, none of which is unionized. Kentucky (Senate Republican Leader Mitch McConnell) already has Toyota’s biggest auto assembly plant outside Japan. Tennessee (Senate Rep. Bob Corker, who came up with the “chapter 11” bailout amendment) houses Nissan’s North American headquarters. Alabama (Senate Rep. Richard Shelby) hosts Mercedez Benz and several other foreign automakers.

So there’s no reason to suppose the good citizens of Kentucky, Tennessee, or Alabama are particularly excited at the prospect of handing over their taxpayer money to competing firms and their workforces.

Besides, southern Republican are not particularly enamoured with the UAW, which has steadfastly bankrolled Democrats who have taken on Republicans. (The new Congress will have at least six new Democrats from formerly Republican districts, all of whom received at least $40K from the UAW.)

Corker’s compromise — which would force the UAW to match the wages of foreign, mostly non-unionized autoworkers in the South — would essentially make the UAW irrelevant. Why have a union if you can get the same deal without one?

But Republicans also know that the Big Three and their suppliers are spread out over the battle-ground states of Michigan, Ohio, Pennsylvania, Indiana, and Minnesota. Republicans don’t dare give up these states or alienate their citizens.

So here’s where compromise comes in.

The dirty little secret is that, bailout or no bailout, the Big Three will have to lay off thousands of workers over the next few years, as the foreign non-union automakers take market share away from them.

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About Robert Reich 547 Articles

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

He has served as labor secretary in the Clinton administration, as an assistant to the solicitor general in the Ford administration and as head of the Federal Trade Commission's policy planning staff during the Carter administration.

He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s "Marketplace" are heard by nearly five million people.

In 2003, Mr. Reich was awarded the prestigious Vaclev Havel Foundation Prize, by the former Czech president, for his pioneering work in economic and social thought. In 2005, his play, Public Exposure, broke box office records at its world premiere on Cape Cod.

Mr. Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

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