Executive Intelligence Review
This article appears in the June 23, 2006 issue of Executive Intelligence Review.

How Many Shocks To Jolt
Congressional Action on Auto?

by Paul Gallagher

LaRouche PAC and LaRouche Youth Movement forces, joined by state legislators and union leaders, met 30 Members of Congress or their staffs on June 8-9, pressing for Lyndon LaRouche's proposed emergency legislation to save closing auto plants and make them the center of a national infrastructure-building program. LaRouche PAC organizers then brought the same mobilization to the national convention of the United Auto Workers (UAW) June 11-15. By the week's end, hundreds of state and local elected officials and union representatives had signed the public call to Congress for the legislation, which appeared as paid ads in the Congressional publications The Hill and Roll Call during the lobbying drive.

The U.S. Congress and the UAW international leadership still share a common problem: They appear to think that nothing can be built in these auto plants except cars and trucks, which leaves them debating solely what kinds of fuel should be in the tank. This puts them at odds with the rich industrial history of repeated "retooling" of the auto industry. (See "The Development of American Machine Tools," in this section.) It has blocked them from acting thus far on the solution—Congressional intervention and credit for retooling of the auto industry's closing plants, and unused capacity, for infrastructure purposes. Without that Federal intervention, a globalized auto industry, ridden by crisis levels of debt, will keep taking those skilled jobs and machine tools out of the United States, at an accelerating pace. More major American auto plants are closing and set to close over 2006-08, than in the previous three decades.

A series of shocks is being delivered to the Congress which may propel them into action, given the expanding national mobilization of pressure by LaRouche PAC epitomized by the Capitol Hill ads.

Rohatyn's Outsourcing Role Exposed

First is the growing perception that the world's financial system is careening toward collapse, accompanied by the sudden increase in general inflation and rise in interest rates; at the same time, new job creation has shrivelled up. Quickly, job-creation programs will start to be generally demanded. The alarming 0.7% drop in U.S. real wages in May alone, accelerating a sickening five-year trend, shows the potential for a crash. It also explains why in the teeth of rising inflation, average automobile prices are going down in a more desperate attempt to sell cars, worsening the auto sector's crisis.

The second shock was the revelation that the Delphi Corp. bankruptcy—the central and "driver event" of the auto collapse, with 25 plants of a single company being rapidly shut down—had been planned personally by Felix Rohatyn as investment bank advisor to Delphi from May 1 until Oct. 8, 2005. Rohatyn and LaRouche are direct opponents and enemies in the Democratic Party, and Rohatyn has exercised influence against LaRouche's infrastructure proposal to save auto, denouncing any return to "FDR's methods." Rohatyn's own "methods" in Democratic policy circles are to promote privatized infrastructure schemes, actually corporatist-fascist schemes in which infrastructure is to be paid for out of workers' pension funds, wages, and benefits.

So with this "Democratic" banker and moneybags exposed as strategic planner of the biggest and worst corporate outsourcing in U.S. industrial history, the shock is striking home. LaRouche PAC has circulated more than 100,000 copies of the white paper detailing this exposé, including saturating the Congress and the UAW convention with it (see EIR, June 16, 2006). Further revelations filled out the picture of Rohatyn Associates' and Rohatyn's Lazard Frères bank's steering of the auto collapse process.

LaRouche PAC released on June 12 (see box) the evidence that Lazard had repeatedly been retained by the UAW to analyze GM's, Ford's, and Delphi's books and advise the union on these corporations' demands for contract givebacks. The corporations had paid Lazard for its consultancies to the union! Lazard in November and December 2005 told the UAW that the health benefit cuts GM and Ford, respectively, were demanding, were absolutely necessary; agreeing to the cuts, the union cited this Lazard advice in a December 2005 letter to Ford employees.

But what, LaRouche asked, did Rohatyn and Lazard say about the huge executive salaries and bonuses being paid at the same time as the cuts, by GM, Ford, and especially Delphi? Did it also find them "absolutely necessary" for the company's survivable cost structure? And what about Delphi's overseas books and accounts, kept off limits in Rohatyn's "strategic bankruptcy" of only Delphi's U.S. operations? Did Lazard find it "absolutely necessary" that those books be hidden from the UAW, the court, and Congress?

The full dimension of the outsourcing of the entire basis of U.S. economic recovery and security, is clear in the following picture of successive waves of capacity lost. From 1990-97, following the end of the Cold War, according to industry sources, some 60 million square feet of industrial capacity of defense/aerospace contractors and companies was shut down, and its machine-tool content completely auctioned off.

In late 2004, under changes made in Defense Authorization legislation, the "national defense reserve" of machine-tool packages for industry—maintained for 60 years by the U.S. military as an industrial "surge capacity" for a crisis, was similarly auctioned off from Defense Logistics Agency bases. And in 2006-07, some 80 million square feet of auto capacity, the last leg of U.S. machine-tool pre-eminence, is shut or scheduled to shut in just two years' time.

The debt crisis of the major automakers is continuing to deepen while Congress holds back, and auto plants close across the country. Total auto sales in the United States are steadily falling, month by month, as American households' real income drops (in May, real wages fell by another 0.7%; the drop is accelerating). Since the drop in auto sales is most pronounced in the Midwest region, home to hundreds of thousands of auto unionists who have strong loyalty to American car brands, "Big Three" sales are dropping faster than the total. Despite GM's use of its cash hoard to buy tens of thousands of auto workers into retiring from the industry—this is supposed to be good news on Wall Street!—its debt is still rated by the credit agencies as likely to fall further into junk.

Ford's `Way Forward' To Mexico

Ford's debt crisis is now ranked as even worse than GM's. The level of tension even within Ford Motor management ranks, at the destruction of America's first and once-premier automobile company, was dramatized on June 14, delivering still another major political shock. A Ford management employee leaked to the press, the top Ford management's secret plans for a massive move of auto assembly to Mexico.

The leak to the Oakland Press, and the following day to the Detroit Free Press, exposed the lying of Ford executive vice president Mark Fields, who was speaking that very day, June 14, to the U.S. Chamber of Commerce in Washington, D.C. about "keeping American content" in cars sold in America. Fields' and Ford's actual plan—apparently presented to the Mexican government in April to line up subsidies—was revealed as: building a new assembly plant and expanding two others in Mexico; reaching production of nearly 1 million cars a year there; "saving" nearly $2 billion a year from far lower wages, benefits, and other costs; quadrupling its purchases of parts in Mexico. In the United States and Canada, meanwhile, Ford is in the process of shutting down seven of the 18 assembly plants it ran as of Jan. 1, 2006.

Delphi's plants are also winding down at an extremely fast pace. Since April, 10,000 of its employees have been ushered out of the industry through retirement buyouts, or moved back into vacated jobs at GM where 23,000 additional workers have been drummed into early retirement in the same two months. And on June 8, Delphi and GM announced a second offer, aimed at buying out a further 10,000 Delphi employees by the end of July. At that pace, Delphi would be down to a mere 12-13,000 production workers by August, and the 25 plants CEO Steve Miller has marked for shutdown, would be closing rapidly from lack of a sufficient skilled workforce.

Miller asked and received a postponement of the next bankruptcy hearing until August, hoping that by then, he can "fine-tune" wage and benefit cuts with the few U.S. unionized workers who remain, and end the bankruptcy-globalization battle over Delphi with a whimper, rather than the bang of a national strike.

Hedge funds associated with predator "industrialist" Wilbur Ross, particularly Appaloosa Partners and WL Ross & Co., are positioning themselves to take control of the stripped down, globalized Delphi and squeeze all the "shareholder value" out of it. Appaloosa has put out a call for $1.8 billion in new capital for the purpose of buying Delphi debt and stock; Appaloosa already heads an informal "creditors committee" with 21% control of Delphi. And on June 13, Delphi appointed as a new director, John P. Englar, the executive of Burlington Industries who, in 2003, sold Burlington out of bankruptcy to Wilbur Ross's private equity fund, at a concessionary price. Ross and Delphi CEO Steve Miller have also done this same predatory dance before, with Bethlehem and LTV steel companies.

Only Federal action is capable of stopping this final stage of outsourcing of the machine-tool core of the U.S. industrial economy, and reversing its collapse with a policy of infrastructure project and jobs creation.

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