[Congressional Record (Bound Edition), Volume 155 (2009), Part 7]
[House]
[Pages 9233-9236]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      OUR AUTO INDUSTRY NEEDS HELP

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
  Ms. KAPTUR. Mr. Speaker, these are daunting times for communities in 
the Great Lake States. Our region's communities have served as 
production

[[Page 9234]]

platforms for our Nation for generations--for the generations when 
America built a solid middle class. Our region did not simply trade 
wealth, as do Wall Street and other mega-banking centers. We made it.
  Our Nation's economy and, frankly, our defense industrial base depend 
on production platforms such as the motor vehicle industry for jobs, 
for industrial might, and for real wealth creation for the Republic. 
One of every seven jobs in our country is tied to the motor vehicle 
industry. Over half of semiconductors are used in auto production, 
nearly half of the carpeting, as well as plastics, glass, metals, 
electric wiring, machine tools, and the list goes on.
  In my district and throughout the industrial Midwest, the Big Three 
and their suppliers still form the bedrock of our economy. And although 
elite opinion makers try to deny it, the reality remains that as the 
motor vehicle and auto industry go, so goes the economy of the United 
States. And that economy isn't looking too good these days.
  President Obama is correct in saying that we cannot and must not and 
will not let our auto industry vanish. Those of us in our Nation's 
heartland have always known that. America cannot lead the global 
economy unless it leads in the global auto and truck center. No modern 
industrial power has ever survived without a thriving domestic motor 
vehicle industry whose capabilities undergird its defense industrial 
base. Japan understands that. China understands that. India understands 
that. Germany understands that. Do we understand that?
  Now, we can take a look at the severe challenges facing this industry 
today. The most important reason that this industry is facing 
difficulties at the moment is because of the credit crunch and the 
inability of Wall Street to reach Main Street despite billions, 
hundreds of billions of dollars put into the TARP that isn't working. 
Any sales-dependent industry, like the automotive industry, must have 
credit lines open to the dealerships and to consumers who want to buy 
those cars.
  So that TARP bailout overrides everything else happening. We need to 
see it. Straightening out what is being done by the U.S. Treasury, 
aided and abetted by the somnambulant Federal Deposit Insurance 
Corporation and the Securities Exchange Commission, is essential to 
righting our economic ship of state. And the failure of those agencies 
to monitor, let alone regulate, has created today's financial wreckage.
  Mark-to-market accounting is killing more value inside this economy 
than the bailout can possibly replace. And as Treasury and Wall Street 
still fiddle, Main Streets across this country implode, including those 
where the automotive sector is predominant.
  I am glad the President talked about the pain that is felt across our 
auto industry. Let me just say, look at the hands and the faces and the 
legs of autoworkers. They know their work is hard. The predicament 
we're in isn't their fault. It is a crisis of leadership, as the 
President has said, starting right here in this city.
  Thomas Friedman, a writer, is wrong. He says the world is flat. Well, 
it's not. It has mountains and has huge valleys, and our auto industry 
has had to compete on a very unlevel playing field. Take this fact: 
over half the vehicles sold in this country actually come from other 
places in the world. In Japan's market, the second largest market in 
the world, only 3 percent of their cars come from any place else in the 
world.
  Whose market is open? Whose market is closed?
  Mr. Speaker, tax policy operates against this industry, and if we 
look at the number of cars, including the new Buick LaCrosse that was 
rated No. 1 by J.D. Power, we have an industry ready to compete. Let's 
give it a chance.

                      Mom, Apple Pie, and Hyundai?


 The auto industry has been a bulwark of the American middle class. If 
            Wall Street warrants a bailout, why not Detroit?

                            (By Pat Choate)

       In those happy days of the 1950s, my friends and I 
     anxiously awaited the moment when the local auto dealers 
     began displaying their new car models. My uncle was a 
     Chrysler-Plymouth dealer, and we always began our tours 
     there. Then we would go from one showroom to another, 
     collecting the brochures, sitting behind the wheels of the 
     new Corvettes, Chrysler 300s, Plymouth Sport Furies, and 
     Thunderbirds, opening the hoods and admiring the powerful 
     engines. Rare was the teenager of that era who did not know 
     the specifications of virtually every model produced by 
     General Motors, Ford, and Chrysler.
       ``Car people'' such as Lee Iacocca, then at Ford, were in 
     charge of America's Big Three automakers. They loved their 
     cars as much as their customers did. The carmakers and their 
     suppliers produced an ever changing set of engines, 
     transmissions, accessories, and gadgets that made buying a 
     car a family treat unlike any other. So many different types 
     of hubcaps were produced that there were hubcap stores in all 
     the major cities. In Texas, stealing them was a state pastime 
     for teenaged boys.
       The differentiated line of cars produced by General Motors 
     was also a measure of social and economic status. A Chevrolet 
     was for those starting out. A Cadillac was for those who had 
     arrived. Pontiacs, Oldsmobiles, and Buicks were stop-offs for 
     those on the way up or down. A jump from a Chevrolet to a 
     Buick was an event noticed and commented upon by neighbors as 
     a measure of success--or of someone acting above himself.
       In that postwar period, Americans were on the go, and 
     though Charlie Wilson was ridiculed for commenting, ``What's 
     good for General Motors is good for America,'' he was right. 
     The Great Depression and World War II were memories, people 
     had well-paying jobs, credit was easy, and a new car could be 
     bought with a small downpayment. GM and the auto industry 
     were a major part of the economy and an important contributor 
     to that prosperity.
       The Big Three autos, coupled with the construction of the 
     42,500 mile Interstate Highway System and the establisment of 
     a vast network of safe and inexpensive motels such as Holiday 
     Inns, opened the continent for inexpensive family vacations. 
     Dinah Shore's perky signature song captures the essence of 
     America's love affair with its cars: ``See the USA in your 
     Chevrolet. America is asking you to call. America is the 
     greatest land of all.''
       But success bred complacency and hubris in the industry. By 
     the mid-1960s and early 1970s, management of the Big Three 
     had shifted from the car people to ``numbers guys,'' who were 
     more interested in squeezing every possible penny of profit 
     from the vehicles. To avoid costly worker strikes, Big Three 
     management made major concessions to labor on pensions, 
     healthcare, and vacations, costs it then passed on to 
     consumers. Meanwhile, quality slipped. Designs were 
     unimaginative. Buyers would ask whether a car was produced on 
     a Monday or Friday, fearing that either the workers were too 
     exhausted and hungover after the weekends to do a good job or 
     too anxious to leave on Friday to care.
       By the late 1960s, the Big Three had become an easy target 
     for Japanese and European competitors. In 1980, Chrysler 
     faced bankruptcy, and General Motors' management seriously 
     considered exiting the auto business altogether. As part of 
     that strategy, GM bought Hughes Electronics and Ross Perot's 
     EDS.
       Perot and the GM management quickly soured on each other. 
     He wanted to manufacture the best cars in the world, and they 
     wanted to enter into businesses in which they were 
     inexperienced. One of the more interesting business lectures 
     captured by the Harvard Business School in its case studies 
     is Perot's speech to the GM board on the day he concluded his 
     sale of stock back to the company. He ticked off what he 
     thought was wrong with GM and what it needed to do to assure 
     its prosperity in the auto industry. The essence of his 
     message was to treat workers well, be innovative, settle for 
     nothing less than making the best cars in the world, and sell 
     them at the lowest possible price. His advice was ignored, of 
     course, and GM continued to lose position in its domestic 
     market.
       Eventually, GM, Ford, and Chrysler's plodding efforts to 
     build better vehicles began to pay off in the early and mid-
     1990s. Quality improved, styling began to matter once again, 
     and the Big Three produced the kinds of vehicles Americans 
     wanted--big, comfortable, powerful, and safe. Easy credit and 
     cheap gas made owning the behemoths inexpensive, and Detroit 
     seized control of the market for full-size pickups, vans, and 
     SUVs.
       A key moment for the Big Three and UAW came after their 
     signing of the 1996 labor contract. GM thought it had bought 
     three years of labor peace. But the union unexpectedly staged 
     a series of local strikes in facilities that produced 
     strategic parts, the shortage of which could stop all GM 
     production. These snap strikes closed GM for part of 1997 and 
     cost the company billions of dollars. For whatever advantage 
     the union may have gotten, its actions enraged GM management, 
     which accelerated its investment in duplicative plants in 
     other parts of the world, staffed with nonunion workers.
       In 1999, GM spun Delphi, its parts division, into a new 
     corporation that entered Chapter

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     11 reorganization in 2005. The UAW contract was broken, and 
     the workers were left with $14 per hour jobs, no healthcare, 
     and no defined-benefit pensions. President Lyndon Johnson was 
     once asked if half a loaf of bread was better than none. He 
     replied, ``A slice is better than none.'' The Delphi workers 
     got a slice.
       Over the past two decades, each of the Big Three has been 
     through extensive management changes, downsizing, and 
     layoffs. Chrysler even became part of the German company 
     Daimler, which could not make the acquisition profitable and 
     eventually sold 80 percent of its interest to Cerberus, a 
     private investment fund.
       It is difficult to teach an elephant to waltz, but it can 
     be done. While the Big Three have been slow to change, they 
     have adapted well enough that they still hold half the U.S. 
     market share. It is an amazing turnaround.
       Consider quality. In 2007, Ford won 102 quality awards, 
     including AutoPacific's Best in Class for three models and 
     Germany's largest auto magazine's Auto 1 of Europe Award for 
     its S-MAX. Forbes awarded the 2008 Chrysler 300 ``the 
     highest-quality car in the near-luxury category'' over the 
     Audi A4, BMW 3 Series, Lexus IS, and Mercedes-Benz C Class. 
     Of the 15 global finalists for the 2008 Motor Trend Car of 
     the Year Award, the Big Three manufactured nine, the Japanese 
     four, and the Europeans two. The 2008 winner was GM's 
     Cadillac CTS, which Motor Trend described as ``proof that 
     Detroit can still build a world-class sedan.''
       As for innovation, General Motors, Ford, and Chrysler 
     invest almost $12 billion annually on R&D, making them a 
     major source of technology development. In 2007, the U.S. 
     Patent and Trademark Office granted these three corporations 
     1,030 patents.
       James E. Malackowski, CEO of Ocean Tomo LLC, a merchant 
     bank that specializes in intellectual property products and 
     services, recently compared four of the green, clean, and 
     energy efficient patent portfolios held by the Top 15 global 
     automakers--emission control, catalytic converters, and 
     related chemistry; fuel cells; hybrid/electric vehicles, 
     mostly motor and battery innovation; and emerging related 
     technologies, including solar, wind, and other green 
     inventions.
       GM has higher average quality and newer green technology 
     and patents than the other 14 auto manufacturers combined. 
     Together with Ford it holds approximately one-third of all 
     green-technology patents and the related value. Moreover, GM 
     has 70 percent of the patents in the emerging-technology 
     category. This domestic share increases to 85 percent if Ford 
     is added. Finally, Ford owns 30 percent of all patents with a 
     similar related-value measure in emission-control innovation. 
     These Big Three technologies have great potential for 
     stimulating overall U.S. economic and job growth and creating 
     a greener and more fuel-efficient world.
       There is much of value to be saved in this vital industry, 
     but relief has been slow in coming. When Wall Street 
     recklessly gambled with borrowed monies and lost, federal aid 
     was characterized as a ``bailout.'' The present auto crisis 
     was created by powerful economic forces, many beyond 
     Detroit's control. Federal efforts to save the U.S. auto 
     industry would constitute a ``rescue.''
       The primary causes of the current U.S. auto-industry crisis 
     are threefold: a financial freeze in which even well-
     qualified borrowers are denied credit to buy vehicles; 
     fluctuating oil prices that have driven the price of gasoline 
     from less than $2 per gallon to more than $4 and then back to 
     $2, all in less than 10 months; and a consumer panic that has 
     cut retail sales to 15-year lows.
       The failure of the U.S. Treasury Department and Securities 
     and Exchange Commission to monitor, let alone regulate, Wall 
     Street has created today's financial wreckage and the 
     resulting consumer panic. And despite the obvious need for a 
     far-sighted energy policy, the last four presidents and 
     Congress have done little but encourage more drilling.
       The longer-term inability of America's auto industry to 
     export competitive products has its origins in U.S. trade 
     policies that accept closed foreign auto markets and the 
     payments of massive export rebates by other governments to 
     their automakers. How can U.S. automakers be expected to 
     compete in a world where German producers get a 19 percent 
     export subsidy on every vehicle sold in the United States, 
     China undervalues its currency by up to 50 percent, Japan 
     keeps its auto market tightly closed, and the U.S. government 
     allows South Korean automakers to sell more than 700,000 
     subsidized vehicles in this market annually, but tolerates 
     Korea's restriction of U.S. imports so tightly that fewer 
     than 7,000 American-made vehicles are sold there each year? 
     The Big Three and the UAW are not at fault for these 
     distortions of competition.
       The three overarching questions that President-elect Obama 
     and the 111th Congress face are: what will happen if the Big 
     Three are not saved, how much will it cost, and what is the 
     best way to execute the rescue?
       As to the first question, federal inaction would be costly 
     and destructive in ways America has not experienced since the 
     Great Depression. The Center for Automotive Research--
     appropriately, CAR--projects that a 100 percent closedown of 
     the Big Three auto producers would result in the loss of 
     almost 3 million U.S. jobs in the first year. The majority of 
     those losses would be Main Street jobs distributed across the 
     country that depend on spending by the Big Three--steel, 
     glass, and rubber producers and the 20,000 dealers, who are 
     major purchasers of advertising in local newspapers, radio, 
     television, and other small business services provided by 
     lawyers, accountants, real estate contractors, and 
     landscapers.
       A 50 percent reduction in the Big Three's operations would 
     be almost as costly. CAR estimates that 2.47 million jobs 
     would be lost in the first year, 1.5 would still be unfilled 
     in year two, and slightly more than 1 million in year three. 
     The lost revenues from either scenario would devastate 
     federal, state, and local budgets, creating further economic 
     upheavals. CAR estimates that a 100 percent shutdown would 
     cost $156 billion in lost tax receipts and increased transfer 
     payments. A 50 percent shutdown would cost $108 billion.
       Job loss is only part of the risk. The U.S. defense 
     industrial base would be greatly weakened if the Big Three 
     failed. The collection of machine tools, robots, production 
     lines, and skilled workers of the auto industry gives the 
     United States the capacity to shift quickly from domestic 
     production to the manufacture of tanks, airplanes, and other 
     war materiel as happened in World Wars I and II. The foreign 
     auto transplants are not a substitute, for they are mostly 
     facilities for putting together kits manufactured abroad.
       As for the cost of the auto rescue, it is impossible to 
     estimate the final number. Certainly, $38 billion for an 
     operational bridge loan is too little and will require 
     supplements. GM alone has a cash-burn rate of $2 billion per 
     month, and will use its portion of the first loans within 
     months. Yet the earliest that GM says that it can produce its 
     new line of vehicles is 2010. Inevitably, the automakers will 
     be back for more, much like the banks and insurance 
     companies.
       As CAR has documented, however, the costs of inaction will 
     also be great. Its estimates of a collapse, moreover, do not 
     include the costs of shifting more than $100 billion of Big 
     Three pension liabilities to the Pension Benefit Guaranty 
     Corporation, which is currently operating with a $10 billion 
     deficit. Only about a quarter to a third of the Obama 
     administration's proposed stimulus of massive investment 
     infrastructure expenditures will be felt in 2009, half in 
     2010, and the remainder thereafter. As presently defined, it 
     will have little effect on the Big Three.
       They need more sales now. The fastest and surest way to 
     stimulate such activity is for the federal government to give 
     a massive one-to-three-year tax deduction for sales of U.S. 
     vehicles with a high U.S. or North American content, such as 
     70 percent. This would help clear the dealer backlog and 
     immediately put people to work. It also would allow taxpayers 
     to get great bargains on new vehicles.
       Some have suggested that Chapter 11 is the only viable 
     option for the Big Three. But it would create an economic 
     avalanche in which dozens, if not hundreds, of suppliers and 
     dealers would be forced into bankruptcy. No institution other 
     than the federal government is now able to provide the 
     billions of dollars necessary for the industry to operate 
     during reorganization. And at the very moment that these auto 
     giants need to act quickly and be flexible, they would be 
     constrained by a federal judge and trustees to get approval 
     for even the most basic decisions. Those who advocate 
     bankruptcy need only look at the cumbersome and costly Delphi 
     experience, which is now in its fourth year.
       But rescuing the American auto industry will require more 
     than vast sums of public monies. Basic policy changes in 
     trade and tax laws are essential. One of the most difficult, 
     but unavoidable, challenges will be to end the Value Added 
     Tax discrimination faced by the Big Three in both their 
     domestic and foreign markets. Soon after World War II ended, 
     U.S. trade negotiators agreed to allow the rebate of Value 
     Added Taxes on their exports and the imposition of VAT 
     equivalents on their imports of U.S. goods and services. 
     Europe was rebuilt decades ago, but 153 nations now have a 
     VAT, and its average rate is 15.5 percent. Japan has a 5 
     percent VAT, China's is 17 percent, Germany's is 19 percent, 
     and France imposes 19.6 percent. The economic consequences to 
     the Big Three and other U.S.-based manufacturers have been 
     devastating.
       When a German automaker exports a vehicle into the U.S. 
     that costs $50,000, for instance, it receives from the German 
     government a 19 percent VAT export rebate, worth about 
     $9,500. But when one of the Big Three exports a $50,000 
     vehicle to Germany, it must pay the German government a 19 
     percent, $9,500 VAT-equivalent tax at the dock. Thus the Big 
     Three products are price disadvantaged in both markets. 
     Moreover, these discriminatory VAT rules provide a powerful 
     incentive to outsource production from the United States. In 
     the Tokyo, Uruguay, and Doha trade negotiations, the U.S. 
     Congress instructed American trade negotiators to eliminate 
     this tax disadvantage, but other governments refused to 
     discuss the issue.

[[Page 9236]]

       In addition to pressing for the adoption of new global 
     trade rules to end VAT discrimination against U.S. 
     manufacturers, the incoming administration should focus on 
     eliminating the many protectionist national tariff and non-
     tariff trade barriers crippling the Big Three. India, for 
     example, imposes a 100 percent tariff on imported U.S. 
     vehicles. China's tariff rate is 25 percent. Korea has long-
     run national anti-import campaigns that include targeting for 
     tax audits anyone who buys a foreign car. Unless foreign 
     economic protectionism is confronted immediately and at the 
     highest levels of the U.S. government, the American auto 
     industry cannot survive.
       Three other principles are essential to the rescue. First, 
     taxpayers should receive substantial equity in these 
     ventures, plus long-term warrants, whose purchase price is 
     set at today's stock values. After all, we are taking the 
     risk. When any public loans are repaid, the terms and 
     conditions should require a sale of those stocks, hopefully 
     at a substantial public profit. Taxpayers made almost a 30 
     percent profit on the Chrysler loans three decades ago.
       Second, demands for a reduction in worker pay should be 
     eschewed. The UAW and its members have already made massive 
     wage and benefit concessions in recent negotiations. Delphi 
     is only one example. Almost a century ago, Henry Ford paid 
     his workers a then unheard of $5 per day so they could buy 
     the products they were making, and the auto industry led the 
     way in creating an American middle class. This rescue should 
     not undermine broader efforts to provide secure jobs and 
     benefits, nor should it allow the pitting of well-paid 
     American workers against the penny-wage labor of other 
     countries.
       Without question, the UAW has often been smug, arrogant, 
     and inflexible. But rather than punishing it by requiring 
     reduction in its members' pay, we should expect the union to 
     contribute to the rescue. It should enter into a no-strike 
     agreement until the federal loans are paid and invest its $1 
     billion ``rainy day'' reserve, commonly called its ``strike 
     fund,'' in the preferred stock of the Big Three until the 
     loans are satisfied. The rainy day has come, and if taxpayers 
     are putting up money to save UAW jobs, so should the union.
       While U.S. antitrust laws allowed the UAW to target one 
     company at a time, those same laws prevented the Big Three 
     from negotiating together on an industry-wide contract. Any 
     rescue should permit the Big Three and UAW to negotiate an 
     industry wage and benefit package.
       Third, executive pay at the Big Three should be capped at 
     some simple multiple of the average annual pay of Big Three 
     workers, such as 10 or 15 to 1, with any bonuses being 
     provided in corporate stock, at least until any federal loans 
     are paid off. Also, the Big Three executive pension funds 
     should be required to have at least a majority of its capital 
     invested in Big Three stock. The goal, of course, is to 
     create a common incentive for labor and management to work 
     together.
       As of mid-November 2008, the U.S. Treasury and the Federal 
     Reserve had advanced $2 trillion to salvage the financial 
     wreck created by Wall Street. In late November, the FDIC 
     announced that it was ready to loan another $1.4 trillion to 
     stabilize the banks. The Bush administration and Congress 
     seem to have no limits to their concern about Wall Street.
       The Big Three automakers, their suppliers, and dealers are 
     on Main Street. They employ millions of workers and provide 
     essential goods for American consumers. If the Big Three 
     fail, an economic tsunami will quickly roll across the United 
     States, destroying jobs, incomes, and national confidence at 
     historic levels. The challenges faced by the new 
     administration at that point would be similar not to those 
     faced by Franklin Roosevelt, but to those that confronted 
     Herbert Hoover in the first years of the Great Depression.
       In this instance, what is good for General Motors is good 
     for America.

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