The battle drums are beating along the Potomac, and the message ringing unmistakably loud and clear in the ears of Senators and congressional representatives is this: The U.S automobile industry doesn’t begin and end with Detroit, southeast Michigan and the Midwest – a city, a state and a region that have apparently become expendable to the powers that be in Washington – but rather its tentacles spread out across the union in a powerful network of small and large businesses alike, from the local auto dealer franchise in small-town America, all the way to multi-billion dollar supplier corporations in the heart of Silicon Valley.
And now that this essential part of the U.S. manufacturing base is on the brink of oblivion, the real story is finally being told, and the untenable realities and ramifications of a collapse of the domestic automobile industry are being put in stark terms that even our leaders in Washington can understand.
In just this past week, the true value of the domestic automobile industry is coming to the fore, and people all across this country are starting to take notice.
The Los Angeles Times reported on Monday about the huge portion of sales tax revenue generated by vehicle sales in California and its affect on the taxes collected by city, county and state governments. Using just one example - when Heritage Lincoln Mercury (among the largest Lincoln Mercury dealers in California and part of the Tustin Auto Center) closed its doors in the city of Tustin in August – the
Times reported that a crucial source of revenue for the city, which relies heavily on taxes from automobile sales to keep afloat, was devastated.
Of the city's $20-million annual budget, about $5 million comes from the local auto center, the city's director of finance, Ronald Nault, told the
Times. And with sales of Lincoln and Mercury cars and trucks down by nearly a quarter nationwide through October compared with last year, the Heritage dealership was forced to fold. But it doesn’t stop there, because many of the other dealerships in the auto center, although still in business, are seeing severe sales declines, which means even fewer sales taxes collected.
"It has definitely affected us," Nault told the
Times, adding that collections from the auto center were on pace to be off 20% for the year. And with industry-wide vehicle sales falling even more sharply in recent months, the revenue shortfall could be substantially greater, forcing the city to consider spending cuts, a salary freeze, reductions in travel and the possibility of layoffs for the first time in the city's history.
The
Times continued by saying that “sales of new and used cars, as well as parts and service, are the single largest source of sales tax revenue for almost every state, county and local government, ahead of gasoline sales, restaurants and department stores. (Alaska, Delaware, New Hampshire, Oregon and Montana do not collect sales tax.) More motor vehicles are sold in California than in any other state; in the second quarter, nearly 15.5% of all sales taxes here, or $193 million, came from the automotive and transportation sector, compared with about $135 million from restaurants and hotels, according to Hdl Cos., which compiles sales-tax data for government agencies.”
But, the
Times cautioned, California’s second-quarter automotive sales-tax receipts were down dramatically - more than $30 million short in the second quarter alone from a year earlier - contributing to the huge budget shortfall that has led Gov. Arnold Schwarzenegger to propose a sales tax hike and spending cuts.
"This is very bad for states," Donald Boyd, senior fellow at the Nelson A. Rockefeller Institute of Government told the
Times, who went on to point out that sales taxes are the first or second most-important revenue source in almost every state.
And to think there are people still out there who suggest that the collapse of the domestic automobile business somehow “won’t affect them.”
Let’s go on to another part of the State of California – Silicon Valley - a relative hotbed of anti-Detroit rhetoric and home to major corporations involved in the manufacturing of semiconductors.
The Mercury News reported in last Sunday’s edition that “The financial crisis hammering Detroit's auto industry is sending shock waves to Silicon Valley, where a number of companies make the computer chips that have become increasingly vital components in cars and other vehicles. And if Ford Motor, Chrysler and General Motors go belly up, as some experts fear, the repercussions in the valley could intensify.”
"As soon as the automotive industry coughs, a lot of other companies get a cold," Thilo Koslowski, who tracks that business for research firm Gartner, told the
News. "That includes companies in the semiconductor industry and that includes a lot in the Bay Area... It's a relatively big market for them in Silicon Valley."
For the record, the roster of South Bay companies that supply semiconductors for carmakers include Intel, Atmel, National Semiconductor, Spansion, Altera, Maxim Integrated Products, Xilinx, Linear Technology and Cypress Semiconductor, according to the
News.
And one more report about the U.S. automobile industry’s role in the American economy.
Crain’s Chicago Business, a sister publication to
Automotive News, did a deep dive on what the collapse of a Detroit automaker would do to Chicago – “ from South Side manufacturers to northwest suburban dealerships to downtown TV studios” – and these are some of the staggering statistics they came up with...
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