HOWEY: Buckle up Hoosiers, it could be a bumpy week

By BRIAN HOWEY

The fate of tens of thousands of Hoosier jobs will be debated in the U.S. Senate beginning today. The decision — coming as soon as Wednesday — could usher in a reprieve for the American auto industry and the Indiana economy. Or it could signal a new chapter fraught with hardship in this part of the nation where the auto industry began a century ago.

President-Elect Barack Obama, House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, the Big 3 automakers and the UAW are pressing for what Michigan U.S. Sen. Debbie Stabenow calls a "bridge loan" that will allow General Motors, Ford and Chrysler to retool for the next generation. Opponents, ranging from U.S. Rep. Mike Pence to U.S. Sen. Richard Shelby, take a more ideological stand saying that American taxpayers - already on the hook for $1 trillion in Wall Street, Freddie Mac and Fannie Mae bailouts - should not save a "failed" economy.

Gov. Mitch Daniels, who will be in Greensburg today to help dedicate a new 2,000 job Honda plant, characterized a Big 3 bailout as sending "good money after bad." It would be Daniels and fellow Govs. Jennifer Granholm of Michigan and Ted Strickland of Ohio who would find the rest of their terms dealing with a potential economic calamity if GM, Ford and Chrysler collapsed. Indiana directly employs 61,000 (out of close to 3 million total jobs) directly tied to the auto industry, according to the Alliance of Automobile Manufacturers. That includes domestic, foreign and auto supplier jobs. But Indiana Manufacturers Association President Patrick Kiely says that 20 percent of the state's economy is linked to the auto industry. These jobs include various support vendors such as information technology jobs that have been outsourced.

The Center for Automotive Research estimates that a GM collapse could idle 2.5 million workers nationally. Kiely said that many Indiana-based auto suppliers make parts for the Big 3 as well as Honda, Toyota and Suburu, which also have plants in Indiana. The summer strike at American Axle that slowed production throughout the state is a classic example of how interwoven the industry is here. The web of suppliers would be forced into a grueling reassessment and retooling.

While U.S. Sen. Richard Lugar, who designed a $1.2 billion bailout for Chrysler Corp. in 1979, has called for a "thorough" deliberative process in the coming hours, other Senate Republicans weren't buying the buyout. "Companies fail everyday and others take their place. I think this is a road we should not go down," said Sen. Shelby of Alabama, the senior Republican on the Senate Banking, Housing and Urban Affairs Committee. "They're not building the right products, They've got good workers but I don't believe they've got good management. They don't innovate. They're a dinosaur in a sense." Added U.S. Sen. Jon Kyl, the Senate's second-ranking Republican: "Just giving them $25 billion doesn't change anything. It just puts off for six months or so the day of reckoning."

Speaking on CBS' "60 Minutes" Sunday, Obama called for a rescue but said that it should be provided as part of a long-term plan for a "sustainable U.S. auto industry, not simply as a blank check. For the auto industry to completely collapse would be a disaster in this kind of environment." He was referring to the credit crisis that has roiled Wall Street and sent the U.S. and world economies on to a precarious cliff. "So my hope is that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all of the stakeholders coming together with a plan - what does a sustainable U.S. auto industry look like? We want a bridge loan to somewhere as opposed to a bridge loan to nowhere."

Yet the G-20 summit this past weekend (reflecting a new reality: an expansion from the G-8) is calling for a new world economic order and Europeans viewed an American rescue of the Big 3 a "protectionist" move.

The Bush administration also sent new signals this morning. The Bush White House stressed today that it supports help for the struggling auto industry, but believes it should not be taken from the $700 billion financial system rescue program, according to the Associated Press. Bush press secretary Dana Perino said the president "does not want U.S. automakers to fail." but said that the administration steadfastly opposes drawing funds from the bailout plan to help Detroit. She said the $25 million that Democrats favor taking from the rescue plan should come, instead, from a Department of Energy program previously approved to develop fuel-efficient vehicles.

U.S. Sen. Evan Bayh, a long-time ally of the UAW, called for "short term help" but insisted on "long-term structural reform" to create a sustainable system. He told Gannett News Service a Congressional rescue would be the "quickest way to go about it. Speed is of the essence. What we need to focus on are those things that would actually help the economy. If we could stabilize the auto industry, that would be a major step in the right direction."

Washington Post columnist Robert J. Samuelson captured the essential dilemma in today's editions. He questioned how allowing the Big 3 collapse that could send the U.S. jobless rate from 6.5 percent to 8 percent "just to satisfy a purist free market ideal. It doesn't make sense. But neither does it make sense simply to heave taxpayers' money at the automakers. The goal is not to rescue companies or workers; it's to shore up the economy and improve the U.S. industry's competitiveness. A bailout won't succeed unless other things also happen."

Samuelson said the Big 3 must write down debt (GM has $48 billion). It must readjust labor costs (at $71 an hour at GM compared to $47 for the Toyota worker). There are 780,000 UAW retirees and dependents. This accents a scenario where the U.S. health care crisis must be addressed, though certainly not in the near term. "The bailout should be more than union welfare," Samuelson wrote. And it must demand greater fuel efficiency. Currently the U.S. mandates only 25 mpg vehicles which will rise to 35 mpg in 2020. The Obama presidency's success is predicated on weaning the U.S. off foreign oil; out of this crisis could come the foundation needed to establish that goal.

GM's dilemma originates from its behavior over the creation of electric vehicles. In the 1990s, it created the EV1, but while that vehicle was critically acclaimed, it was poorly marketed and the company refused to renew leases, destroying the entire fleet in California. It now has the plugin Volt coming on to the market in 2010. In the interim, it heavily marketed big gas gussling SUVs and trucks like the Mishawaka-built Hummer. When gas prices hit $4.19 a gallon in Indiana last summer, the market dropped out creating the current crisis.

Therein lies the crisis and opportunity. A Congressional rescue could include mandates for more electric vehicle innovation, health care reforms and updating the electrical grid needed to sustain the fleet switchover. Between the 1920s and '60s, a private/public partnership that literally began in Indiana created the auto industry along with the public roads and eventually the interstates.

The auto industry was born in Indiana. It is celebrated here each May with the Indianapolis 500. It has been revived here when Sen. Lugar helped save Chrysler, demanding concessions that created the single platform K-car and a new generation of products and jobs.

Throwing in the towel on companies that created the modern Indiana that we know doesn't appear to be an option. If that comes to pass, the bitter fruits will be, as President John F. Kennedy might put it, "ashes in our mouths." Yet, for the Big 3 to be sustained here, there must be a coming to the table by all involved and subsequent sacrifice. Domestic and national security depend on a historic meeting of the minds.

Buckle your seatbelts, Hoosiers. We are in for a rough ride.



Howey is publisher of Howey Politics Indiana.

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