Sen. Shelby: How Sweet Is the Auto Business in Alabama? Not Very

By Michelle Krebs November 17, 2008

By Michelle Krebs

shelby_richard.jpg Richard Shelby, the top Republican on the Senate Banking Committee, took to the airwaves over the weekend as the chief opponent of loans to Detroit automakers. His premise: This is a Detroit problem not a national problem and taxpayers shouldn't subsidize these poorly managed dinosaurs.

"I don't believe they've got good management. They don't innovate. They're a dinosaur, in a sense, and I hate to see [them get government loans]," Shelby said on NBC's Meet the Press.

With all due respect Senator Shelby, this is not only a Detroit problem. It's an Alabama problem. It's a national problem. And it's a global problem. Recession is spreading around the globe like a California wildfire. Once-hot auto markets have caught cold. And automakers everywhere -- not just in the U.S. -- are asking their governments for a helping hand.

Indeed, taxpayers 'round the globe, including those in your home state of Alabama, have been subsidizing automakers all along.

Shelby's state of Alabama is home to a trio of auto assembly plants and their affiliated auto suppliers. Alabama lured automakers to the state by dangling millions and millions of financial incentives in front of them in the form of infrastructure construction and improvement, job training for workers and tax breaks for the auto companies. In fact, in every case, Alabama outbid other states with its attractive offer, like the $30-million training center that Honda said clinched the deal for its choice.

"We have a very large and vibrant automobile sector in Alabama,'' Jeff Sessions, Alabama's other Republican senator, told Bloomberg Television a week or so ago. " I don't feel like this is the end of the world.''

Vibrant? Really? Have the Senators not been home to Alabama in awhile? In fact, all three of Alabama's auto plants have been struggling for the past year as the sales slump spreads well beyond Detroit. 

Daimler AG, for the first time in its 11-year history of producing vehicles in the U.S., is offering buyouts to all of its 4,000 workers at its Mercedes-Benz assembly plant in Vance, Alabama. The German automaker has not said how many jobs it wants to eliminate.

At the same time, the plant has been trimming production for months due to slow sales of the trio of luxury SUVs it makes, the Mercedes-Benz M-, GL- and R-Class. Night shifts have been canceled and holiday shutdowns including Labor Day, Thanksgiving and Christmas have been extended. Mercedes sales were off 25 percent in October.

Struggles for Korean-automaker Hyundai, which has a three-year-old plant near Montgomery, Alabama., started late last year when it beefed up incentives to record levels to keep its plant, which has yet to reach full capacity, humming. At the same time, it cut daily production to keep inventories in check. Sales of the Santa Fe SUV that is built in Alabama were half of what they were a year ago; sales of Sonata sedan, redesigned only months ago to be even better than the Chevrolet Malibu, as executives said, were off 20 percent in October from year-ago levels.

Japanese automaker Honda built a plant in Lincoln, Alabama, where it builds the Honda Odyssey and the Pilot. Throughout the year, slow sales of the minivan and SUV have forced the plant to scale back production. Odyssey sales were off a whopping 39 percent in October. Pilot sales were down 20 percent. Now Honda plans to add the Ridgeline pickup to the Alabama plant's mix. However, the truck has never lived up to sales expectations. Selling only a couple thousand a month, Honda reported Ridgeline sales were 22 percent lower in October than a year ago. 

In neighboring Mississippi, Nissan finally gave up on trying to keep the line running at full speed at its Canton, Mississippi, plant where it builds SUVs and trucks. Instead, it will convert the plant to commercial vehicles. Toyota is building a new plant in Mississippi and keeps changing its mind as to what product to build there and when. The original plan was to build the Toyota Highlander SUV there. Then Toyota switched gears and said it would build the next-generation Prius hybrid there. Now it is considering delaying production at the plant altogether.

Clearly, management at Detroit auto companies has made stupid mistakes, but Detroit car execs don't have a corner on bad decisions. Every foreign automaker building vehicles in Alabama is making SUVs there. None of them predicted gas prices would soar and decimate the market for SUVs any better than General Motors, Ford or Chrysler did.

Honda's bad bet for its lukewarm makeover of the Pilot, which retained its traditional SUV cues versus hipper crossover ones, was evident the minute Honda pulled the wraps off the SUV at the Detroit auto show earlier this year.

Daimler's decision to offer three SUV versions from the same basic platform, called badge engineering when Detroit automakers do it, was always questionable. And the R-Class always seemed like a dumb -- and ugly -- idea.

Let's remember the Mercedes-Benz plant in Alabama is owned by Daimler AG, which still owns a piece of Chrysler, which could get a piece of any bailout Washington provides. And Daimler is the same company that managed Chrysler to near destruction and then sold to private equity firm Cerberus Capital Management last year for a loss. Now that's a stroke of management genius.

 

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LEAVE A COMMENT

lostandfound08 says: 11:56 AM, 11.17.08

Sadly, the most frustrating part of the interview with Richard Shelby was his complete ignorance of facts. He is, of course, entitled to his opinion on government's role in the economy, but he was spouting off statements that were just plain wrong. Just a quick glance at car magazine on the newsstand would prove the senator wrong. Too bad Carl Levin was so busy spouting off talking points that he couldn't even hit these softballs Shelby was throwing him.

keenan5 says: 3:36 PM, 12.02.08

I was surfing the web and came across your article. I am from the South but have no ties to the auto industry. Your point of view and some of your premises are so off that I had to respond. Premise 1: Bailouts. No company in any industry in this country should get a "bailout". Let economic Darwinism happen. Our economy will be the better for it. Premise 2: State incentives. It is a flawed statement to connect State's incentives to attract new companies in comparison with the Fed's attempt to rescue failing companies. That is a terribly weak and flawed argument. Statement 3: You admit that the auto industry as a whole is suffering and then name ways in which the Southern auto makers are finding ways to adapt. Isn't that what all companies should do? The fact that the industry as a whole is suffering does not mean that Shelby's comments are wrong. Maybe Detroit and Michigan should subsidize and attract new companies that will be successful and create non-union jobs. The problem is Michigan is being run into the ground, unions have negotiated the hands that feed them right out of business and union workers have a bloated entitlement mentality. An example; no one in their right mind should expect a full or near full pension and retirement at the age of 55. The auto industry being down certainly hurts the national economy but Shelby is correct. Let each company get out of this mess own their own. (PS - I could write a book on this subject. FYI - Every successful business owner I know agrees with my point of view. If we fail, we don't expect a bailout nor should we get one.)

bwdouglas says: 2:27 PM, 01.20.09

Michelle, You're right on (no surprise) about the arrogance of Sen. Shelby and how well the South is doing. While Michigan has plenty of structural problems, after the new UAW contracts kick in, some might be surprised at how competitive the Midwest can be- and what a wealth of automaking knowledge is really worth...

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