Friday, December 05, 2008

Subsidies: When Convenient

The ranking Republican on the Senate Banking Committee, Richard Shelby of Alabama, again made clear, in the committee hearing on Thursday, his opposition to any rescue plan for the American automobile industry. On Meet The Press on Sunday, November 16, 2008, Shelby was even more explicit:

We don't need government--governmental subsidies for manufacturing in this country. It's the French model, it's the wrong road, we will pay for it. The average American taxpayer is going to pay dearly for this, if I'm not wrong.

It is, it is a viable option, but the Big Three, they're going to have to save themselves.... The government cannot subsidize and should not subsidize jobs like this, and that's what the road we're going down is going to do.

And the government, at the end of the day, Tom, should not choose which companies are going to survive or not survive. We should let the market work that way. And it has...

However, according to the website (which was primarily concerned that the states' residents had not been well served by the subsidies):

In 1992 South Carolina ushered in the new wave of investment by foreign carmakers in the South by offering BMW a package that was ultimately worth an estimated $150 million. A decade later, the state put up an additional $80 million in infrastructure aid when BMW decided to expand its operations in the state.

In 1993 officials in Alabama lured a Mercedes-Benz facility, the first foreign auto plant in the state, with a package worth $258 million.

In 1999 Alabama put together a $158 million subsidy deal to land a $400 million, 1.7 million-square-foot Honda plant. In 2002 state and local officials provided an additional package worth $90 million, including $33 million in tax breaks over 20 years, when Honda decided to expand the facility.

In 2000 officials in Mississippi lured a $950 million Nissan plant with a $295 million subsidy deal. While the plant was still under construction, the company announced an expansion of the project that also involved an increase in the subsidy package to $363 million.

When South Korean carmakers Hyundai staged a competition for a $1 billion plant, various states put together bids, but it was Alabama that won the contest in 2002 with a package worth $252 million.

Commentators much made of the fact that when Toyota chose San Antonio, Texas in 2003 as the location for an $800 million assembly plant, the company had not selected the site with the most generous subsidy package. In another example of the fact that subsidies are not the most important factor in investment decisions, Toyota highlighted criteria such as access to the large Texas market for the pickup trucks that would be built at the plant. This is not to say that Toyota passed up all government assistance. The company received a package valued at $133 million, including $47 million in tax phase-ins and waived fees.

BMW, Mercedes Benz, Honda, Nissan, Hyundai, Toyota. Subsidies granted them by (respectively) South Carolina, Alabama, Alabama, Mississippi, Alabama, Texas, states generally less gifted with revenue than otheras.

No one remembers Richard Shelby agonizing over the three subsidies given to (foreign) automakers by his state, Alabama. But he was the one who rhetorically asked (told) domestic automakers on November 13 "How do they plan to deal with current management, labor, cost and quality control, and product development shortfalls, which they know they have? How do they intend to reverse the continued loss of market share to foreign car companies?"

At Thursday's hearing, Senator Shelby declared of the domestic automakers "the firms continue to trail their major competitors in almost every category necessary to compete.” Senator Shelby knows how to help reverse the trend, as do his friends in Alabama. Unfortunately, he has made it clear he does not intend to do so, further making a mockery of the year's Republican slogan: "Country First."

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