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Region has big stake in the Big 3
Many jobs, tax dollars at risk if dealers start to fail
Wednesday, November 19, 2008

Monroeville Administrator Marshall Bond is keeping a steady eye on news out of Detroit and Washington, D.C., hoping that Congress will approve a bailout package for the three domestic auto makers.

His concern is well-founded. Loss of dealerships due to the failure of one or more domestic car companies is becoming an increasingly likely event, and Capitol Hill Democrats now say they don't have the votes to pass a bailout for the Big Three.

Auto dealers, the largest group next to auto workers who would suffer under any closures, are a significant contributor to the regional economy. A 2004 study by the Pittsburgh Automobile Trade Association -- based on activity in 2003, the latest available -- said dealerships accounted for 14.8 percent of total retail employment in the area, with 21,659 people employed at local dealerships.

In that study, dealerships collected or paid more than $321 million in state and local taxes. They also were responsible for $123 million in local media advertising. Local charities gathered more than $5 million from the dealerships.

Meanwile, local companies that do business with the auto industry already are feeling the the downturn's effects. In September, Pittsburgh-based PPG Industries, which makes automotive coatings and glass, announced plans to downsize its North American coatings operations, including closure next year of a plant in Ontario, Canada, that employs about 150.

Sluggish conditions in the auto industry contributed to a 39 percent decline in PPG's third-quarter net income this year, compared with 2007's third quarter. Quarterly net income fell to $117 million, or 70 cents per share, from $191 million, or $1.15 per share, a year earlier.

In July, PPG sold 60 percent of its auto glass and services businesses to the New York investment firm Kohlberg & Co. PPG had been trying for several years to unload the business -- which makes windows, windshields and sunroofs -- because of the auto industry slowdown.

But Canonsburg-based Ansys Inc. says it will be able to weather any Big Three shutdown because it has diversified into other fields. Auto design work for Ansys, which creates design and engineering analysis software, extends beyond Detroit to manufacturers in Europe, India and China, where auto manufacturing is a growth industry, said Ansys Vice President of Marketing Chris Reid.

While executives of Detroit's Big Three automakers yesterday continued to lobby Congress for a $25 billion lifeline, the new rescue plan appeared stalled on Capitol Hill -- opposed by Republicans and the Bush administration, who don't want to dip into the Treasury's $700 billion financial bailout program for that purpose.

"Our industry ... needs a bridge to span the financial chasm that has opened up before us," General Motors CEO Rick Wagoner told the Senate Banking Committee in prepared testimony. He blamed the industry's predicament not on management failures, but instead on the deepening global financial crisis.

Banking Committee Chairman Christopher Dodd, D-Conn., disagreed, saying the industry was "seeking treatment for wounds that were largely self-inflicted." Still, he said, "hundreds of thousands would lose their jobs" if the companies were allowed to collapse.

Senate Democrats discussed but rejected the option that the White House and GOP lawmakers favor to tide over Detroit until President-elect Barack Obama takes office in January: Let the auto industry use a $25 billion loan program Congress created in September to help the industry develop more fuel-efficient vehicles. A Senate vote on that plan could come as early as tomorrow, but aides in both parties and lobbyists tracking the effort privately acknowledge it lacks support to advance.

Monroeville's Mr. Bond said a bailout package defeat would mean big problems for his dealership-heavy township. "These are significant taxpayers."

But a Center for Automotive Research study says the failure of one or more domestic auto companies is no longer unimaginable and is, in fact, "probable, within the next 12 months."

The research center study said that if all three major American auto firms were to close, local, federal and state governments would lose $60.1 billion in 2009, $54.3 billion in 2010 and $42 billion in 2011.

The impact would be almost as bad if only one of the Big Three were to close. The study suggests that in 2009, there would still be a revenue loss to state and federal governments of $49.9 billion. In 2010, that loss would total $33.7 billion, and in 2011, $24.5 billion -- or a government tax loss of more than $108 billion over three years.

Not everyone agrees with that assessment. University of Maryland professor Peter Morici, who follows the auto industry, said, "The impact on people and communities won't be anything like they are saying."

But Hempfield Township Manager Rob Ritson countered: "If the car dealers were to close, it would be a significant loss to us -- not only from an income tax basis, and in terms of employees who work auto-related jobs. There's also the real estate and commercial base here, where these dealership properties would sit vacant, and most of the dealerships are on the Route 30 corridor, the heart of a commercial district. Our earned income tax and property tax revenues would certainly be affected."

Don Hammonds can be reached at dhammonds@post-gazette.com or 412-263-1538. Post-Gazette staff writers Ann Belser and Joyce Gannon and the Associated Press contributed to this report.
First published on November 19, 2008 at 12:00 am
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