THE ECONOMY:

Why should Nevada care about the automakers?

Sam Morris

By Lisa Mascaro (contact)

Friday, Nov. 21, 2008 | 2 a.m.

Democrats postpone auto industry bailout

Reader poll

For $25 billion in aid, Democrats demand a recovery plan from Detroit’s Big Three in 12 days.

“The sad reality is that no one has come up with a plan that can be passed by the House and Senate … ”

Fewer visitors are coming to Vegas. If more people lose jobs, tourism numbers could keep dropping.

The Associated Press: Bipartisan group works to revive auto bailout (11-20-2008)

Washington — Senate Majority Leader Harry Reid knew on Thursday that Congress had not been at its finest this week as it weighed rescue of the Big Three automakers.

In Searchlight, or even Las Vegas, it’s tough to explain why ordinary taxpayers should shell out $25 billion to bail out an auto industry whose executives had just flown to Washington on three separate corporate planes, Reid said.

Without public support at home or votes on the Hill, Reid and House Speaker Nancy Pelosi abruptly shelved the bailout plan Thursday afternoon, buying time until Congress resumes in December.

Consider that an action based on a lesson learned last month: Washington can’t get too far ahead of popular opinion on economic rescues. Americans are suffering a bit of bailout fatigue as last month’s $700 billion Wall Street rescue morphs and changes, stocks still tumble and homes are foreclosed.

“What happened in Washington this week hasn’t been good,” Reid said at a hastily called news conference with Pelosi and other Democratic leaders. “The sad reality is no one has come up with a plan that can be passed by the House and Senate and signed by the president.”

Nevada’s lawmakers have been skeptically noncommittal on the bailout bills. Republican Sen. John Ensign told MSNBC, “You can’t just give money to the Big Three automakers without them completely restructuring.”

Democratic Rep. Shelley Berkley remains concerned about losing the Big Three, her spokesman said, but she wants to “ensure taxpayer dollars are protected.”

Republican Rep. Dean Heller, who serves at the center of the action on the House Financial Services Committee, has declined to discuss his views on this topic with the Sun.

Dina Titus, the Democratic Congresswoman-elect, characterized the general feeling in Washington as: “You’ve got to have, first, accountability,” and the funds must be “used in a way to make the companies viable.”

Titus won’t be eligible to vote on the issue next month because she doesn’t take office until January. But she is watching closely, especially as her district is home to both an auto mall and a Ford credit facility.

Around the rest of the state, the auto industry is not a large part of the workforce, according to Nevada labor statistics. Fewer than 1 percent of the jobs statewide, some 10,800, are in auto dealerships. If Detroit goes belly up, the Strip nor Nevada’s gold mines are going bust.

Yet if lawmakers from any state should take a broader interest in global economics, it is those from Nevada, which derives most of its economy from people living elsewhere who have money to spend on fun.

Visitors to Las Vegas have dropped steadily this year the economy tanked. If GM, Ford or Chrysler go bankrupt, as some say they might without Washington’s aid, millions of jobs could be jeopardized.

Michigan Democratic Sen. Debbie Stabenow said Thursday one in every 10 American jobs is tied to the Big Three. That’s a lot of potentially out-of-work slot players.

Professor Keith Schwer, director of UNLV’s business and economic development center, said when a crisis of consumer spending hits an economy as is happening now, travel and tourism are among the first to go.

On a more parochial level, the 115 new-car dealerships in Nevada contribute 16 percent of the state’s retail sales tax, according to an industry group, no small change when the state coffers are empty.

Nevada’s 7.3 percent unemployment rate is steadily climbing, and could hit a Depression-like 10 percent before the economy turns around, experts say.

The number of auto industry jobs in Nevada has declined from 11,400 in the first quarter of 2007 to 10,800 in the first quarter of 2008, the most recent comparison available from the state.

That’s nearly $12 million in lost wages and does not reflect the recent closure of several car dealers in both the northern and southern parts of the state, according to labor officials and news reports.

Jesse Bigley, a state labor economist, said even though the auto industry does not make up a significant part of the Nevada employment picture, “More jobs would be nicer than less jobs.”

Reid has been steadily promoting the automotive bailout despite popular skepticism over the prospect of throwing money at what many see as a backward industry in grave need of innovation and greener vehicles.

Reid’s spokesman notes that for every Nevadan without a job, “we’re going to have to provide services for them that the state is having a hard time paying for.”

The state budget is in such trouble that the governor is considering cutting it by one-third.

On Thursday afternoon, as Reid punted the issue to next month, auto-state lawmakers were clearly disappointed. Their staffs had been working late hours on a bipartisan deal they were about to announce as Reid and Pelosi intercepted the news conference with their own announcement that no votes would be held until December.

“This would have been a wonderful Thanksgiving present for millions of Americans,” said Sen. George Voinovich, an Ohio Republican. “There are a lot of worried people out there.”

Sen. Carl Levin, Michigan’s other Democrat, said “Now this is right smack in the Congress’ lap.”

Discussion: 14 comments so far…

By fremmasmind

11/21/08 at 3:52 a.m.

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It's a two way street, if the automakers were worried about the American working man he wouldn't have outsourced good American jobs to other countries. No bailouts to companies who have taken good jobs away from the United States. Besides they could use the money to build other plants outside of the U.S. Do you trust them?
By lvsundog

11/21/08 at 4:37 a.m.

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"Do you trust them?"

No, I do not trust executives to make sane decisions when their compensation is not linked to their performance, and when their friends are on the board of directors. Have you noticed that executives always crow about their sterling management when profits increase, but always blame "the economy" when profits are down?
By pmmart

11/21/08 at 7:29 a.m.

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A few months ago I read where Ford is planning to spend 6 billion dollars in China to build an auto assembly plant.

I haven't heard if they are working on it yet or if it is to be used for the Chinese auto market, export or both.

Fords proposed venture into China would make a good test case ..IF..Barry sticks with his election campaign promise to punish companies that move jobs overseas to avoid labor costs.

While it is true that Barry hasn't taken office yet our Harry is the man in charge of the US senate.

Would we be subsidizing Fords foreign expansion plans with the 25 billion dollar package?
By texexnv

11/21/08 at 8:41 a.m.

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State governments - including ours - are going bankrupt all across this nation and all Boss Reid can come up with is another disaterous Fed giveaway program to keep high salaries, golden parachutes, and a corporate jet fleet. Seems like here in NevaDUH our state government is a bit more uselful than the lemon dealerships.

But then again state governments aren't huge PACS which will contribute to Boss Reid's PAC.
http://texex-xpress.blogspot.com/2008/11...
By brownln4

11/21/08 at 8:43 a.m.

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I just love the opinion in the rest of the country. I work for one of Detroits big three and have been visiting Vegas twice a year for the past ten years. Recently, the L V Sun has had story after story of how gaming income is down, McCarren traffic is down, layoffs at the hotels, etc, etc. But go look outside at the number of Toyodas, Hondas and others that ply your streets. ( Don't tell me about quality, all reports the past few years is the American companies are on a par with the foreign manufacturers) So lets put things in perspective - if I lose my job, I do not travel to Vegas twice a year, which will create more layoffs and declining home prices due to more foreclosures and we enter the death spiral. All the profits from buying foreign cars and all the engineers that work, design and test foreign cars goes to the home land - namely Japan. If the Japanese tourists can totally support your town, keep buying foreign. Hopefully, a few of you will at least consider a GM, Ford or Chysler in your next purchase and I can keep my job and visit Vegas in March.
By KDR81

11/21/08 at 8:46 a.m.

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Lisa come on, you just interviewed every Keynesian you can find. Most economists will say the bailout is bad"if not horrible.

We got hoodwinked thanks to an economically ignorant media and self interested politicians and Wall Street CEOs.

The government demanded a bailout, you all bought the hysteria, the economy tanked AFTER the bailout was passed, but nothing has happened since...and the government hasn't even spent the $700 billion.

Credit never froze, but you all bought that too.

And now the media is buying the half-baked idea that saving the auto industry will literally save the economy.

WHAT BUNK!

The new auto bailout (down to 25 billion) still costs $50,000 per existing job, NOT JOB SAVED. Without a bailout we don't know how many jobs would be lost and we don't know how many jobs the bailout would save.

Without the bailout the auto industry will not suddenly disappear from America's shores. All of those jobs will not be lost, so we know that the bailout will cost much, much, much more than the $50,000 per job.

Furthermore, that $50,000 per UAW worker must come from somewhere. It doesn't come out of thin air. It comes from the pockets of taxpayers, from lost sales in other business, from lost investment opportunities elsewhere in the economy.

A BAILOUT IS NOTHING MORE THAN A WEALTH TRANSFER.

Furthermore,

1) Not all auto dealerships in Nevada are GM and Ford, so even if GM and Ford disappeared forever (unlikely) we wouldn't experience half the impact this article implies is possible.

2) The only reason we have auto dealerships is because Nevada state law OUTLAWS factory direct shopping or other retail methods of buying a car.
By gqbossing

11/21/08 at 9:14 a.m.

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the problems with the bailout here versus the other segments of business who revieved them are pretty simple to see:

1. The auto industry loses money as an operating company which means no matter how much money you give them it's a losing proposition. Other industries have an operating profit and just made bad business decisions for segments of their busines and couldn't borrow to cover liquidity issues.

2. The auto industry has an albratos of a pension responsibility it negotiated in the 50's, 60's, 70's and 80's. It's committed to millions of older people who don't even work in the company to pay them a salary and health insurance. Until they do something about that the company is doomed for failure

3. "Foreign" auto companies (you can buy stock in them even if you are an american...) build plants over here and use non-union workers who make market rate wages, whereas the big three have negotiated with unions who 20+ years ago were necessary but today are nothing but a parasite. Big3 pay wages of $25+ per hour for a non-skilled job and after 30 years you can retire with a full pension and insurance. Foreign companies pay $15+ per hour and match 401K plans.

You tell me which is set up for success...

There is no guessing why congress doesn't want to give them money, it would only be a handout. they should give it to the workers of the companies and help them find other jobs...
By vc

11/21/08 at 10:18 a.m.

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The big 3 need to hire some Japanese engineers to come over here and design some cars people want. The only thing the big 3 make that people really want is trucks. Now that dried up they are in BIG trouble.
By moatsad

11/21/08 at 10:51 a.m.

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gqbossing : just to play devils advocate , but for those " millions of older people who don't even work in the company to pay them a salary and health insurance" you mention , who do you think will have to pick up the tab if for them when the automakers go under ?
By KDR81

11/21/08 at 11:09 a.m.

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moatsad,

Under the current system they only get paid if those companies can come up with the cash. There is no actual savings or investment. It comes from the price of the new cars and potentially lower wages from current workers.

If it collapsed completly (unlikely) the retirees would be SOL. But they lived the high life for 40-50 years at everyone elses expense. Maybe they put away some of that wealth themselves...
By gqbossing

11/21/08 at 11:56 a.m.

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moatsad,

The pension would go under the government umbrella retirement fund, the value would be dropped by about 50%-75%. The government would pick up the deflated value and the retirees would have no choice but to accept the reductions to their likelyhoods.

The healthcare would dissappear, people eligible for medicare would have to switch over to that and those not would have to find their own.

Not that I like government getting involved, but hat solution sounds so much better than handing over cash to entities which have shown you they cannot run a successful business.
By LT2LV

11/21/08 at 10:44 p.m.

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Last quarter Exxon Mobile posted a $14billion profit. Let them bail 'em out.
By azsk8fan

11/22/08 at 12:21 p.m.

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brownln4, I hate to burst your bubble but the Asians are some of the biggest spenders out here - if you don't believe it check out the Luxor and the MGM and see for yourself. They are probably spending way more money than you could ever imagine - and yes, I prefer Toyota over Ford any day of the week :)

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