The Case for Kenosha
Obama appeared to follow the Bush administration's lead at first, focusing on bailing out banks while tossing bones--enough money to avoid collapse but no more--to the auto industry. Finally, as winter turned into spring, the White House told the auto companies that Chrysler and General Motors would have to radically remake themselves if they wanted to continue receiving government support. It's not that the demand for reorganization was unreasonable; just about everyone agrees that US auto companies have been miserably managed for decades. What was unsettling was the recognition that while banks and insurance conglomerates are seen as "too big to fail," the auto industry is not similarly treasured. The kid-glove treatment accorded Wall Street was replaced by the hard line of an administration that seems, Kotkin warns, "if not openly anti-industrial" then at the very least "anxious to embrace a decidedly postindustrial future."
That dark assessment will be put to the test in Kenosha. More than in most plant-closing battles in recent history, this one is the canary in the coal mine. What happens in Kenosha may foretell the fate not just of its workers, and not just of Chrysler, but of the auto industry as a whole. "If we can't save an engine plant that has won all the awards for quality and efficiency, that has been modernized and supported by the city and the state, that has workers who have been willing to cut their pay and benefits and change their work rules in order to keep the work here, what auto plant are you going to save?" asks Rudy Kuzel, a longtime worker on the line in the Kenosha plant who in the 1980s and early '90s served as the president of Local 72. "The government's coming in, saying we have to shape these companies up and providing the money to do it. That's good. That's what we want. But if the companies use the government support, the tax money, to shut factories and move the jobs out of the country, what are we saving? The company name?"
The company name doesn't mean much to Kenoshans. They've called their auto plant by many names since 1900, when Thomas Jeffery bought a bicycle factory on the waterfront and later started mass-producing vehicles with two groundbreaking innovations: steering wheels and front-mounted engines. Historians say it was in Kenosha, not Detroit, that cars began "to look like cars." Those small, inexpensive, sometimes homely vehicles, known as Ramblers but jokingly referred to as Kenosha Cadillacs, were made by the Thomas B. Jeffery Company, then by Nash Motors, the Nash-Kelvinator Company and the American Motors Company, which George Romney (Mitt's dad) made an American success story. AMC partnered with the French firm Renault to pioneer production of fuel-efficient cars in the 1970s and eventually sold out to Chrysler in 1987.
Through most of the past century, the constant in Kenosha has been not a particular company but the union. Already organized with the American Federation of Labor when the founding convention of the UAW was held in 1935, Kenosha's Local 72 has been at the heart of the UAW ever since--and the UAW has been at the heart of a community that still proudly calls itself a "labor town." The union's passion preserved Chrysler's presence in the city in the late 1980s, when Local 72 members, working with the Rev. Jesse Jackson and other national activists, battled plans to shutter the plant. Gone are the days when more than 16,000 families took home AMC checks, but the 800 families who work for Chrysler still pump more than $50 million annually into the local economy. And Local 72 remains an essential player in Kenosha politics. Obama was just the latest politician to covet, and eventually benefit from, the UAW endorsement in this tightknit town of 90,000.
Now Local 72's future rests with Obama. Even before the president took office, Chrysler collected a $4 billion federal loan (compared with $12 billion for much larger GM) as part of the initial auto bailout. But no one thought that would be enough. Chrysler, with 54,000 employees worldwide, spent the first four months of Obama's presidency teetering on the brink of bankruptcy. The administration promised more money but only if Chrysler's lenders agreed to slash nearly $7 billion in secured debt. The four big banks that held 70 percent of the debt agreed to erase it for $2 billion, but a group of hedge funds that control roughly 30 percent of the debt held out for more money.
At the behest of the administration, Chrysler went into bankruptcy to force the hand of the hedge fund managers and clear the way for an alliance with Italian automaker Fiat. "No one should be confused about what a bankruptcy process means," Obama said. "This is not a sign of weakness but rather one more step on a clearly charted path to Chrysler's revival." Initial media reports even suggested that workers would have a real say in the direction of the new company, although that assessment proved to be overblown. A UAW-aligned healthcare trust fund will technically have a majority stake--in recognition of healthcare and pension concessions made by the union--but that does not translate into actual control. The prime movers will be Fiat chief executive Sergio Marchionne, a dynamic figure who promises fuel-efficient technology, cooler cars and better management, and the US government, which is offering as much as $6 billion in additional loans to the new company.
That money is the key to Kenosha's future, and to that of nearly two dozen Midwestern auto towns. The industry's instability has shaken the Great Lakes region, creating some of the highest unemployment figures since the Great Depression. Yet the strings that have been attached to the bailouts seem to favor downsizing-obsessed managers and foreign investors looking for cheap entry into the US market.