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By BRIAN A. HOWEY
CARMEL - The lease on my Ford F-150 is just about up, so I’ve been doing my research. After a summer of $4.19 a gallon gas, I decided on a Ford Escape Hybrid. It gets 36-mpg city, 31 highway. It’s American made. I went to the local 
Ford dealer for a test drive. The salesman kept telling me that I better buy it now because it was the only one on the lot and there were only “11 in the entire state of Indiana.” 11 in the entire state!
If you wonder why the American auto industry is in precarious shape, ponder that. Or think back to the General Motors, totally electrically powered EV1 of the 1990s that established a loyal consumer base in California, only to have the auto maker pull them all off the market and destroy them. Until recently, GM was pushing the Mishawaka-made Hummer product line.
As GM goes, so goes the nation. And so goes the Hoosier state. Twenty percent of the Indiana workforce is in automotive related businesses. It goes well beyond those plants making windshields and transmissions. In the old days, GM had vertical integration, but now it essentially has a design and manufacturing core, having out-sourced not only the supply chain, but also things like information technology.
GM stock was trading at $2.92 just after its 100th birthday this past week, the lowest point in 65 years. Next month GM’s cash reserves will fall below the minimum $10 billion it needs to run its global operations.
“The dynamics here are multiple,” said Patrick Kiely, president of the Indiana Manufacturers Association. Back in 1982, he was Indiana House Ways & Means chairman for three weeks when Gov. Robert Orr called a special session that dealt with that severe recession and positioned Indiana to become part of the Chrysler bailout.
I asked Kiely what would happen if GM files for bankruptcy and, after that, collapses into oblivion. He couldn’t tell me exactly how many companies or workers toil for or supply GM. “What we do know is that 20 percent is transportation related, second only to Michigan,” he said. “It’s huge for us. An automotive calamity would certainly impact us.”
In his victory speech on Election Night, Gov. Mitch Daniels understated that Indiana was in for a “rough patch.” At his first press conference three days later, President-elect Barack Obama pushed for a federal bailout of the Big 3 (GM, Ford and Chrysler), explaining he recognizes “the hardship it faces, hardship that goes far beyond individual auto companies to the countless suppliers, small businesses and communities throughout our nation who depend on a vibrant American auto industry. The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil.”
Obama called on Congress to “accelerate the retooling assistance” to help Detroit “succeed in producing fuel-efficient cars here in the United States of America.”
While the Bush administration’s federal bailout flounders, there are many of us who wonder whether we should throw more good money after bad to the very same people who have made bad decisions and give us the wrong products. Might a collapse of the Big 3 pave the way for innovative companies with progressive management to fill the idled plants with assembly lines for revolutionized cars?
Indiana Republicans are divided. U.S. Sen. Richard Lugar, who helped design the Chrysler bailout that included serious concessions from the automaker, dealers and UAW, is calling for a “thoughtful and thorough discussion of the options,” said spokesman Andy Fisher. Such a deliberative process occurred with Chrysler after President Carter’s initial proposal was rejected by then Senate Banking Committee Chairman William Proxmire. U.S. Rep. Mark Souder is leaning toward a bridge loan because Northeastern Indiana’ economy is so tied to the industry. U.S. Rep. Mike Pence said he would be very “hesitant” to include the Big 3 in a bailout because you can’t “bail” out a failing economy. Gov. Daniels called it “sending good money after bad.” And conservative commentator and former Republican presidential candidate Pat Buchanan said allowing the Big 3 to collapse would be “insanity.”
Kiely saw the storm clouds gathering 18 months ago on the speculation that whiplashed Wall Street this summer. “What we’re seeing is an economic cycle that normally would play in over 20 years coming in three months,” he said. Gas has gone from $147 a barrel last summer ($3 short of Osama bin Laden’s goal) to $57 a barrel this past week.
Back in 1982, with unemployment in Anderson at 26 percent, Kiely participated in the Chrysler bailout designed in part by U.S. Sen. Richard Lugar. The state was repaid with 12 percent interest within five years and subsequent Chrysler innovation brought us the mini-van.
The danger in allowing a collapse of the Big 3 is anywhere from 2 to 5 million jobs lost nationally and a shudder through the economy. Retailer Circuit City is bankrupt. Best Buy saw its stock plunge 13 percent. “Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen,” said Best Buy CEO Brad Anderson.
Kiely asks, “Is Best Buy the beginning of a trend or a collapse?” He noted a recent radio interview with an exotic dancer named “Danica” in Indianapolis who said she was working twice the hours for the same amount of tips last month. But once gas dropped to $1.80 a gallon, “the guys are back.”
On Tuesday morning, I drove my F-150 downtown - burning through a couple of gallons of $1.79 gas - to participate in a Chamber of Commerce panel with State Sen. Jim Merritt and State Rep. Greg Porter. They talked about the need to fund health care, education and a murky biennial budget.
I reminded them that they didn’t start calling the Great Depression by name on Oct. 30, 1929. That moniker took awhile to sink in. The world we’re seeing now as opposed to what we’ll see next April or May is unfathomable.
Howey is publisher of Howey Politics Indiana at www.howeypolitics.com
Tags: Brian Howey, Mark Souder, Mike Pence, Mitch Daniels, Patrick Kiely, Richard Lugar
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This entry was written by and posted on November 14, 2008 at 9:43 am and filed under Brian Howey Column. Bookmark the permalink. Follow any comments here with the RSS feed for this post.
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