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Posted by on Feb 15, 2009 in Economy, Politics | 6 comments

Next Up: Auto Bailout Talks 2.0

The stimulus battle is done and in the books.

The next mega-issue is the banks. Increasingly, the chorus for nationalization of some form is picking up pace. A prominent Republican, Lindsay Graham just added his voice to the call for, at least, considering nationalization.

And of course, the housing issue looms in the background; Obama will offer some plans (or plans for plans) on Wednesday.

But a golden oldie – the automotive industry’s problems – will re-emerge on Tuesday.

According to the December auto bailout deal, GM and Chrysler must file a recovery plan to the Treasury Department in order to receive the second half of the bailout funds offered them. Despite the Tuesday deadline, neither GM nor Chrysler seem all that close to a viable plan. Moreover, ongoing negotiations with the UAW make the plans even more unclear.

What’s striking, however, is how different this debate will look compared to December. If you recall, the December battle between US automakers and their advocates on one side, and the mostly Southern Senators from states with import manufacturers, centered on the difference between union and non-union compensation scales. The US automakers should make their pay scale more like those of the Japanese, argued my own Senator Bob Corker.

Lurking in the background was the realization that the suppliers actually serve both Japanese and US automakers, and would stand to suffer in the event of a collapse. In my own city of Maryville, Tennessee, Denso is a major employer and provider of automotive parts to both Japanese and American carmakers. Denso first eliminated overtime pay, and then moved to a four day a week schedule. Other suppliers here in East Tennessee have cut their workforces.

In other words, the pain is already hitting the so-called “import states” like Tennessee. Moreover, the poor performance from Toyota, Nissan, and Honda, mostly because of declining demand in the US market, mean the industry as a whole is facing a crisis.

And so the context for GM and Chrysler has changed a bit. No longer is this JUST a US v. Import issue. It is now a question of the overall status of manufacturing in this country – and in the world.

Also important is the skepticism from the Obama Administration over the future of GM and Chrysler. David Axelrod made it clear that a serious “restructuring” is necessary to justify continued government aid.

What happens from here is anyone’s guess. The old North v. South, union v. non-union battles will undoubtedly return in the discussion over the next step. But the economy has deteriorated significantly since December, meaning the Obama Administration is going to have to navigate through some troubled waters.