The American automakers rescue plan now emerging from Washington bears the hallmarks of a nation still seething from multiple post-bailout outrages: AIG took an $85 billion bailout, then spent $443,000 on an executive spa retreat; U.S. banks are clinging to their $700 billion, freezing credit and strangling small businesses, like Chicago's Republic Windows & Doors.
Congress wants to avoid getting burned again, so it is laying out its demands to the Big Three: $1 CEO salaries, more control over the restructuring, a Car Czar.
These conditions are necessary, but they are not enough. The Big Three have a history of creating an environment of desperation, extracting cash from the government, then closing plants and firing workers, demolishing the economy anyway.
If Congressional leaders are serious about this $15 billion bailout saving the economy, and not becoming yet another fat gift of corporate welfare, I have three words for them: Remember Willow Run.
In late 1991, during another recession, and another terrifying downturn in the auto industry (one we blamed on competition from Japan), General Motors announced a series of plant closings and layoffs that would eventually put 74,000 people out of work. As that chilling news sunk in, GM declared it would also close one of two assembly plants, either the Willow Run factory in Ypsilanti, Michigan, or one in Arlington, Texas. But before making its decision, GM would give the plants a few months to come up with "cost-saving" proposals.
What ensued was a frantic competition for survival, pitting two already hard-hit communities against one another to see who could eviscerate themselves the most. The unions hashed out offers to slash wages, benefits, and overtime. The towns of Ypsilanti and Arlington, and the states of Michigan and Texas, each drew up plans to gut schools, lay off police officers, close libraries, abandon parks -- anything, in short, to accommodate the deepest possible budget cuts, and give GM bigger tax rebates.
For eight excruciating weeks, you could feel the desperation in both communities swell daily by degrees, as they traded sacrificial offerings. You'll cut wages 10 percent? We'll see your 10 percent and raise you health insurance co-pays by 20 percent! You'll close a library? Watch us bleed our schools!
In February 1992, GM named Arlington the winner. The Texas workers had offered to work three days a week without overtime, and the state of Texas and town of Arlington threw in a tax rebate for GM worth $30 million. Ultimately, it was that tax cut that killed Willow Run. Ypsilanti and Michigan could not match it -- because they'd given GM so much already.
Between 1975 and 1990, Ypsilanti granted repeated tax rebates to GM, at least 122 of them, for a total of $1.3 billion.
The final two rebates came under a state law that explicitly traded tax breaks for jobs -- a company that invested money in new or existing plants and preserved or added jobs could receive steep, lucrative tax discounts. Under that law, Ypsilanti granted GM and Willow Run a 12-year break worth nearly $14 million.
When, after only a few years, GM decided to close Willow Run, the town, the county and the state of Michigan sued for breach of contract. The billions in tax breaks weren't gifts to GM, they argued; they were made in exchange for jobs, specifically, 4,000 jobs at Willow Run for the length of the rebate, 12 years.
For a while, it looked as though Ypsilanti might prevail. The state law that created the tax breaks tied them to jobs, and the Circuit Court judge who first heard the case ruled in favor of Ypsilanti and Michigan.
That judge, the Hon. Donald Shelton, wrote in his decision that GM:
"... having lulled the people of the Ypsilanti area into giving up millions of tax dollars ... [cannot be] allowed to simply decide that it will desert 4,500 workers and their families because it thinks it can make these same cars a little cheaper somewhere else. Perhaps another judge in another court would not feel moved by that injustice and would labor to find a legal rationalization to allow such conduct. But in this Court it is my responsibility to make that decision. My conscience will not allow this injustice to happen."
But Michigan's State Appeals Court quickly overturned Shelton's ruling, and the state Supreme Court sided with GM as well. Willow Run closed for good in 1993.
As for the "winners," the workers and citizens of Arlington, the sacrifices they made were nearly as steep as those made in Ypsilanti -- and they got similar results. Within two years, NAFTA took effect, and GM spent its Arlington "cost savings" on building new plants in Mexico, investing $356 million there in 1995 alone.
Slowly, GM siphoned jobs out of Arlington. In 1992, nearly 4,000 people voted to cut their take-home pay to keep working; last year, only 2,500 jobs remained.
Today, in the middle of a year-long recession, one being called the worst downturn since the Great Depression, it would be lunacy to suggest the automakers could be saved without layoffs. But it is equally delusional to give $15 billion to GM, Chrysler and Ford and expect that somehow, this time, we'll fare better than Ypsilanti and Arlington.
Congress must give the Car Czar the authority to demand some job preservation -- in writing -- as part of any bailout. If it doesn't, we can watch the automakers cash our check and plow that money straight into China or Mexico, as GM did in 1995. Or perhaps they'll do as the airlines did in 2001: Congress passed a $15 billion bailout for that industry that allowed its top executives to keep their multi-million dollar salaries, but, after heavy lobbying by the airlines, cut out provisions to help laid-off workers with job training, unemployment benefits, or health insurance. The airlines laid off 100,000 workers that fall; one airline used bailout money to preserve pension and health benefits for its most senior executives.
Despite the hemorrhaging of jobs to Mexico and China, the Big Three automakers still employ about 250,000 Americans, and another half a million jobs, at least, depend on the their survival. Jobs are the reason Congress is even considering a bailout for the automakers. Preserving them must be condition No. 1.
Follow Kelly Caldwell on Twitter: www.twitter.com/kkc212
http://www.time.com/time/magazine/article/0,9171,822863,00.html
Back in the days of Kaiser Motors.
http://www.cnn.com/ALLPOLITICS/time/1998/11/02/states.war.html#ohio
Apparently the lower court thought there was one, but was overruled, if the article is correct. Reminds me of Bush closing down the NY regulators trying to restrain foolish loan activities.