Senator Sherrod Brown

WASHINGTON, D.C.—As the leaders of the nation’s auto industry come before Congress to present plans for financial viability, U.S. Senator Sherrod Brown (D-OH) released the following statement from today’s Senate Banking Committee hearing entitled “The State of the Domestic Automobile Industry: Part II.”

A copy of Brown’s remarks, as prepared for delivery, follows.

Mr. Chairman, thank you for convening this morning’s hearing.  And I thank our witnesses, several of whom are joining us for the second time in two weeks. During those two weeks, the auto companies were given the task of developing detailed plans on how they would use taxpayer support, and whether we could have some assurance that they would be able to survive and ultimately thrive.

They have met that test.  There are no absolute guarantees that their plans will succeed, nor can there be.  But based on reasonable assumptions, they will return to profitability and repay the federal loans they are seeking within a few years’ time. Now it’s our turn.  We have two choices.  We can either provide bridge loans to the auto industry, or drive the economy off a bridge. 

Seldom are the consequences of inaction so clear.  If we do nothing, there will be a cascade of bankruptcies, not just in Detroit but across the country.  Yesterday, a steelmaker in Cleveland announced that 450 men and women need not come to work on Monday.  Some 40 percent of its production goes to the auto industry.  It’s already competing in an industry where foreign governments subsidize steel hand over foot.  What happens to that mill if one or all of the Big Three go bankrupt? 

Some of my colleagues are hesitant to support helping the industry because they do not think it has changed enough in response to foreign competition.  They may not fully appreciate the dramatic changes that have taken place in the domestic auto industry over the past few years.  Or, when they hear “this time it’s different” they are understandably suspicious.

This time is different.  In just five years the auto industry has undergone incredible changes.  You can see it in the showrooms and on the factory floor.  You can see it, unfortunately, in the empty factories and communities across the country that are struggling in the wake of layoffs.

Montgomery County in my state has lost 26,000 auto jobs over the past few years.  Industry employment as a whole has been cut in half, and productivity has soared to match or exceed the foreign transplant factories.
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The UAW has agreed to extraordinary reductions in the pay and benefits of auto workers.  In 2005, 2007, and again just yesterday, it has been a partner in putting the industry on a path to match the costs of the competition.  This is no mean feat given the fact that the domestic industry is supporting a much larger retiree population than its competition. 

But it is not something that can, or should, be accomplished overnight.  I wish we paid a lot more attention to the pay and benefits of the guys with a private shower in their office suite and criticized less about the guys who shower in the locker room at the end of a shift. A little over two months ago it was the banking industry that faced a crisis with an urgent need for federal help.  The differences in how we’ve responded to the two crises are striking. We didn’t ask that the CEOs of the banks drive to town in a Wells Fargo armored truck.  They had lobbyists, very good ones, who gave us a three-page plan for spending $700 billion that we adopted with some revisions a week and a half later by a vote of 74-25.

The financial companies themselves, five of which have received more than $25 billion apiece, not only did not appear before Congress, but they have never produced a plan for how they will spend the money, nor have they been asked for one by Congress or the Bush Administration. They did not have to testify about why they built and marketed structured investment vehicles, but we’ve heard plenty of debate about the building and marketing of sport utility vehicles.

The argument that Secretary Paulson and Chairman Bernanke made before this committee on behalf of the banking industry was that it needed patient capital that only the federal government could provide.  The banking industry was in peril, they told us, but given federal support and a few years’ time, it would be back on its feet. If newspaper reports are correct, that was $3.2 trillion dollars ago, with possible commitments from the federal government of up to $8.5 trillion from the Federal Reserve, the Treasury, and elsewhere. I don’t quarrel with the need to help the banking industry, though I have plenty of concerns for the way we are proceeding.  The need here is exactly the same, even though the standards for transparency we are setting are almost literally like night and day.

The auto industry has been hit by the same collapse in the credit market that brought Secretary Paulson and Chairman Bernanke to Capitol Hill on behalf of the banking industry.  It has the same need for patient capital, a bridge loan to take it to the other side of the recession. We know this can work.  We’ve seen it work in the past.  But we have no basis to believe that people will buy cars from a company in bankruptcy. 

If we fail to act, the consequences will be felt throughout the economy – in the credit markets, the supplier industries, even the local newspaper.  As we saw with the collapse of Lehman Brothers, standing by while a company goes bankrupt can send shock waves to unexpected places throughout the economy.

If we fail to act, years from now some future Professor Bernanke will study our actions and marvel at the missed opportunity – trillions of dollars committed to the financial sector, tens of billions denied the manufacturing sector with millions of people losing their jobs on top of the more than a million already laid off this year. If we fail to act, we will commit one of the biggest economic sins of omission in our history. Thank you Mr. Chairman.

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