Morning Mechanics: Michael Mukasey Still Has Something to Say

Compuware chief takes on Detroit Three senate critic
BY PETER KARMANOS JR. • November 19, 2008
U.S. Sen. Richard Shelby, R-Alabama, has emerged as the leading Senate critic of the proposed aid package for the Detroit auto industry. It’s pretty clear Shelby has nothing but disdain for Ford, GM, Chrysler and the United Auto Workers, not surprising considering he comes from a state with assembly plants for Mercedes-Benz, Honda and Hyundai. Shelby is in a key position on the Detroit rescue as senior Republican on the Senate Banking Committee.
Wednesday, he continued his anti-Detroit rhetoric, saying he didn’t think the U.S.-based industry was going to turn around without a bankruptcy and the ouster of its leadership.
“I don’t think they have immediate plans to change their model, which is a model of failure,” Shelby said, dismissing the $25 billion in bridge loan being requested as “life support” for Detroit.
“I believe their best option would be some type of Chapter 11 bankruptcy,” Shelby said. “These leaders have been failures and they need to go.”
Shelby actually ratcheted up his anti-Detroit campaign on the Sunday morning talk show circuit, which drew an interesting response from Motor City defender Peter Karmanos, chairman and CEO of Compuware Corp., which moved its headquarters into a new downtown building just a few years ago.
Here’s part of what Karmanos said in a letter to Shelby:
I watched with great interest Meet the Press, during which you and Sen. Carl Levin debated the merits of (or, concerning your position, the folly) providing financial aid to America’s domestic auto industry.
I must admit that I was more than a little taken aback by how out of touch you really are about what Detroit’s Big Three automakers have been doing for some time and continue to do to transform their businesses to both survive in today’s debilitating economic climate and thrive in the future. The steps have been extremely significant and take it from me—someone who lives and works in the Motor City—incredibly painful as well.
… I can only trust that you will take some time and conduct the proper due diligence before continuing to espouse your inaccuracies. At minimum, I believe the domestic auto industry (and its millions of hardworking, tax-paying employees), which helped make America great, deserve as much.
Don’t you?
The intent of this letter, however, is not to take you to task for the inaccuracy of your comments or for the over-simplicity of your views, but rather to point out the hypocrisy of your position as it relates to Alabama’s (the state for which you have served as senator since 1987) recent history of providing subsidies to manufacturing. During the segment on Meet the Press, you stated that:
“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.”
I trust it is safe to say that when you refer to “government subsidies,” you are referring to subsidies provided by both federal and state governments. And if this is in fact true, then I am sure you were adamantly against the State of Alabama offering lucrative incentives (in essence, subsidies) to Mercedes Benz in the early 1990s to lure the German automobile manufacturer to the State.
As it turned out, Alabama offered a stunning $253 million incentive package to Mercedes. Additionally, the State also offered to train the workers, clear and improve the site, upgrade utilities, and buy 2,500 Mercedes Benz vehicles. All told, it is estimated that the incentive package totaled anywhere from $153,000 to $220,000 per created job. On top of all this, the State gave the foreign automaker a large parcel of land worth between $250 and $300 million, which was coincidentally how much the company expected to invest in building the plant.
With all due respect, Senator, where was your outrage when all this was going on? … I certainly don’t recall you going in front of the nation (as you did this past Sunday) to discuss what a big mistake Alabama was making in providing subsidies to Mercedes Benz. If you had, however, you could have talked about how, applying free market principles, Alabama shouldn’t have had to resort to subsidies to land Mercedes Benz. Competitively speaking, if Alabama had been the strongest candidate under consideration (i.e. highest quality infrastructure, workforce, research and development facilities, business climate, etc.), then subsidies shouldn’t have been required.

The fact is that Alabama knew that, on a level playing field, it could not compete with the other states under consideration and, thus, to lure the German car builder to the State, it offered the aforementioned unprecedented subsidies. In effect, Alabama — your state — did exactly what you said government should not do: provide subsidies for manufacturing.

It’s no great mystery why Alabama politicians went to such dramatic anti-free-market measures to secure Mercedes Benz — they did it for the betterment of their state through job creation and increased tax revenues. And who could blame them? Is that so different than what would occur by providing financial aid to help rescue the domestic auto industry? Such aid would save millions of jobs and millions of dollars in lost tax revenue.

Additionally, unlike the giveaways Alabama bestowed upon the foreign automaker in question, United States tax payers would be reimbursed with interest (as they were when Chrysler received government aid in the early 1980s) for their investment in what is clearly a critically important industry for America’s present and future.
Peter Karmanos, Jr. is Chairman and CEO Compuware Corporation