Auto Bailout-Good for Louisiana?

Thursday, November 20^th, 2008

Baton Rouge, Louisiana

BIG THREE AUTO PROBLEMS HIT

HOME IN LOUISIANA

To bail out or not to bail out? That is the question being debated in Washington this week as the Big Three Auto Makers plead for a $25 billion bailout. Members of the Louisiana congressional delegation are either strongly opposed to any federal money going to Detroit, or at best are ambivalent as to the problem. The thinking is it really doesn’t make that much difference here Louisiana. But does it?

On my radio show broadcast from New Orleans last week, I raised the issue of whether there was justification for taxpayer dollars being injected into the domestic auto industry. The response was overwhelmingly “no way.” Most Louisianians don’t really care what happens to these American car makers, recognizing that there many foreign options available. So how much impact will shutting down the big three auto producers really have on Louisiana?  It’s a lot more significant than most people realize.

General Motors has a large production plant in Shreveport producing three different vehicles; Hummers, Colorados, and Canyons.  1500 workers produce these vehicles, and plant officials were hoping this number would increase to 3000 by the middle of next year. But that’s only one aspect of the auto financial impact throughout the state. Shreveport, Baton Rouge and New Orleans all have become relay stations where American cars are stockpiled as they are transported to other parts of United States. Estimates are that as many as 1000 jobs are involved in the state relay operation alone.

Several large trucking companies are involved in moving GM products from Shreveport to dealerships located throughout the United States.  Rail networks operating throughout Louisiana also are actively involved in auto transportation. Sen. Bennett Johnston was successful some years back in garnering federal money for a rail spur allowing train traffic to come into the Shreveport GM plant. A number of good paying jobs are involved in the effort of moving vehicles once they come off the assembly line.

There are a variety of other subsidiary manufacturing plants in northwest Louisiana servicing GM. Several stamped metal body companies in Louisiana produce the frames for GM cars and deliver them to the production site in Shreveport.  GM officials estimate that besides the 1500 employees operating at their Shreveport site, the ancillary production operations and transportation impact creates an additional 1500 jobs.

And how about the various domestic auto dealerships spread throughout Louisiana?  Of a total of 345 dealerships, 221 sell American made cars.  That’s 65% of all dealers in the state.  And each of these dealers hires, on average, 54 workers totaling approximately 12,000 employees throughout Louisiana. Right now, these dealership owners and employees are deeply concerned.

I attended a dinner party this week that included three different Louisiana auto dealers all selling American made vehicles. In individual conversations, I made small talk by asking how their day was going. They each indicated that they spent the day watching C-SPAN to view the hearings on the proposed Big Three Bailout taking place in Washington.

What about bankruptcy? A number of companies in industries like airlines, steel and retailing have shown that, by taking bankruptcy, they can restructure and offer a fresh start to preserve a future for their workers. It would seem like a reasonable alternative for companies like G. M. to submit a prepackaged bankruptcy plan, laying out steps they will enact once it receives Chapter 11 protection. This would buy some time for an orderly shakeout.

But again, there’s a danger for Louisiana auto dealerships and their employees if bankruptcy becomes the alternative. Car dealerships selling American automobiles are independently owned, and have contractual relationships with the Big Three to sell their cars. If the producers go bankrupt, then the contract with the dealer is abrogated and is no longer in effect.  Producers like GM will then be at liberty to pick and choose what dealers sell their cars, and what contracts they want to void under the bankruptcy protection. That means a number of Louisiana car dealers could be out of business.

Another big problem with bankruptcy is that car buyers could well see it as a sign that the cars they bought may not retain their value. Who wants to buy a car from a company that is in deep trouble and may completely go under?  A recent poll involving over 6000 consumers found that some 80% of them would not purchase a car from a company that files bankruptcy. If someone purchases a ticket on a bankrupt airline, it is a one-shot transaction that is over quickly. A car on the other hand is a major investment where families want the assurance that it will perform for a period of time. Maybe three or four years, because that’s all part of the bargain.

But the biggest danger for any company considering bankruptcy is finding liquidity. Where can you locate a lender? With the severe downturn the country is facing today, and banks themselves in line for bailouts, who’s going to loan any money to GM and other auto producers if they are trying to reorganize under court protection?

The good news in all this is that at least there is a recognition of the problem here Louisiana. The state has a lot at stake, and the automobile industry could be a significant factor in achieving any long-term economic growth. The Department of Economic Development has hired the A. T. Kearney research consulting firm that specializes in automotive issues to determine what kind of economic future the state has in the area of automotive production. So far, three goals have been set.

The first is to maintain and continue to expand the GM plant operating Shreveport. Second is to try to find a company, either domestic or foreign, to build on what Development Secretary Stephen Moret says is hands-down the best available physical automobile site in the country. The State of Louisiana owns some 2000 acres in northeast Louisiana right off of Highway I-20 in Richland Parish.  The site is being actively shopped as a new plant location to automobile manufacturers worldwide.

Moret also points out that with the enlargement of the Panama Canal, South Louisiana should be in the mix as an auto production location. “With our rail and port facilities throughout South Louisiana, our state is a natural to build cars in Louisiana and export them throughout South America. I think this has great potential for Louisiana in the years to come.”

So we are talking in Louisiana about short-term problems and long-range opportunities. The question then is, despite a lot of local voter opposition, should elected representatives of Louisiana in Washington support a major auto financial bailout? There is the potential of some 20,000 jobs being directly affected and many that could go by the wayside.

 And when you consider the fact that one insurance company that has a major presence in Louisiana, AIG, will receive well over $125 billion from taxpayers, a $25 billion  infusion nationally to protect 20,000 jobs  in Louisiana alone seems almost like chump change.

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        “There are more serious problems in life than financial ones, and I’ve had a lot of those. I’ve been broke before, and will be again.“

Willie Nelson

Peace and Justice.

Jim Brown

Jim Brown’s weekly column appears in a number of newspapers and websites throughout the State of Louisiana.  You can read Jim’s Blog, and take his weekly poll, plus read his columns going back to the fall of 2002 by going to his own website at http://www.jimbrownla.com.

Jim also has a new book out on his views of Louisiana.  You can read about it and order it by going to www.jimbrownla.com. .

Jim’s radio show on WRNO (995 fm) from New Orleans can be heard each Sunday, from 11:00 am until 1:00 pm.