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Congressional Testimony


"State of Domestic Automobile Industry"

June 10, 2009

Chairman Dodd, Ranking Member Shelby and members of the Committee, thank you for the invitation to testify today. As the Deputy Secretary of Labor, I hope my testimony will provide you with an overview of the important efforts of both Dr. Ed Montgomery, the President's Director of Recovery for Auto Communities and Workers who is housed in the Department of Labor, and Secretary of Labor Solis. I appreciate this opportunity to discuss assistance being provided to or being sought by communities and workers affected by auto job losses.

As you are well aware, the current recession is arguably the most severe since the Great Depression and has had a profound impact upon our businesses, workers and homeowners throughout the country. Whether measured by housing prices or stock prices, the overall impact on consumer wealth has been substantial. But the consequences of the recession have not just been felt in our savings accounts and in the value of our assets; they have rippled through corporate and small business profitability and in layoffs and job loss.

According to the Bureau of Labor Statistics (BLS), our nation has lost 5.7 million jobs since the recession began in December 2007. The unemployment rate has surged to 8.9 percent -- the highest in level in 26 years. Those who lose their jobs are stuck in unemployment for longer periods of time as the number of long-term unemployed (those jobless for 27 weeks or more) rose to 3.7 million in April or an increase of about 2.3 million since the start of the recession. Among those lucky enough to keep or find a job, the number of people working part-time because they can't get a full-time job has increased by over 4 million to 8.9 million workers.

As striking as this decline is for the country as a whole, the situation is even more severe in much of the auto manufacturing heartland. In March, the unemployment rate in the three largest automobile states was 12.9 percent in Michigan, which has the highest rate in the nation, 10.2 percent in Ohio and 9.9 percent in Indiana. While employment among the traditional Detroit 3 - Chrysler, GM and Ford - is concentrated in these three states in the upper Midwest, the auto industry, including the operations of foreign transplants and their suppliers, has spread out down the center of the country through Kentucky and Tennessee to Alabama and Texas. In Kentucky and Tennessee, which are the home of the fourth and fifth greatest number of motor vehicle manufacturing jobs, the unemployment rates are also near double-digit level. Indeed in 9 of the 10 largest auto employment states the unemployment rate exceeds 9 percent.

It is hard to overstate the significance of this industry for the economic life of millions of Americans. The Center for Automotive Research (CAR) lists 281 counties in 27 states where substantial income or earnings comes from the automotive industry. The BLS estimates that nearly 700,000 workers are employed in motor vehicle and parts manufacturing. Adding auto or motor vehicle dealers to the mix, the reach of the automotive industry is expanded by over another million workers in nearly every community in the country. Besides those directly employed in the production of vehicles and suppliers of parts, it has been estimated that as many as 7.5 additional jobs are created for every assembly plant job in industries ranging from steel to glass, from aluminum producers to construction companies or health care providers. While there is often a tendency to focus on the Original Equipment Manufacturers (OEMSs) and their suppliers when discussing the auto industry, auto dealers also represent a significant source of employment and business activity in nearly every community. This industry has been the source of countless innovations that have helped make our economy a technological leader, as well as created millions of well-paying jobs that help build our middle class.

The recession has had a profound impact on the auto industry and the communities where it resides, however declining employment did not start in 2008. In February 2000, the BLS reported that 1.3 million workers were employed in motor vehicle and parts manufacturing. With one exception, in every year since 2000 total employment has declined so that today only a little more than half of that workforce remains. What had been a slow but steady decline has turned into a flood, with employment dropping nearly 25 percent in the past 12 months. While multiple factors, including rising productivity, no doubt account for some of this longer-term trend, 18 months of steadily declining auto sales to the current near 30 year lows have played a major role in the current strains facing the industry, workers and the communities in which they reside and work.

The President has recognized that we cannot stand by and watch the auto industry disappear. He has moved aggressively to provide both GM and Chrysler with emergency loans to give them time to restructure. His Auto Task Force, of which the Department of Labor and Dr. Montgomery are members, has worked with companies to move them through this process in an expeditious manner so that they can be put on a path to viability. He has signaled his commitment to the industry by having the US government back their warranties. He has provided a tax credit under the American Recovery and Reinvestment Act (Recovery Act) that could lead to 100,000 new car sales and save families hundreds of dollars off their purchase of a vehicle.

President Obama also appointed Dr. Montgomery as the new Director of Recovery for Auto Communities and Workers to cut through red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities, and regions that rely on our auto industry. Working with Labor Secretary Solis and the Auto Task Force, Dr. Montgomery has been developing a comprehensive effort that will help lift up the hardest hit areas by using the unprecedented levels of funding available in the Recovery Act and throughout our government to support workers and create new manufacturing jobs and new businesses where they are needed most. We have also been engaged in an effort to identify new initiatives to help support your communities going forward.

Since Ed was appointed, town halls and meetings have been held in Michigan, Ohio and Indiana with hundreds of workers, employers, state and local officials, and members of affected auto communities to identify ways in which the federal government can help. Cabinet members and representatives from their agencies have actively engaged in listening to these communities and have been figuring out how to cut red tape and support these hard hit areas. As part of this effort, the General Services Administration accelerated the purchase of some 17,000 new fuel efficient vehicles adding $285 million in demand for new vehicles. The Department of Labor has also been working with the Department of Education to expand the definition of eligible training so that workers receiving unemployment insurance can, if they want, use the time while unemployed to get the skills they need. As part of this we are working to make sure unemployed workers are eligible for the $17 billion in Pell funds under the stimulus package.

The President's Auto Task Force and Dr. Montgomery have also recognized that one of the most pressing challenges is to ensure that auto communities have access to existing federal programs and new funding under the Recovery Act. Where we have identified potential challenges to accessing these funds or programs, we have taken steps to ensure that auto communities have an equal chance at accessing federal funds. Recognizing the emphasis Michigan has placed on green jobs in planning its recovery, the Department of Energy (DOE) held a workshop for county and local municipalities in Michigan to train local leaders on how to apply for the Clean Energy and Conservation Block Grants, which are being given out both by formula and competitively. In order to make sure the new DOE small loan program truly served the needs of businesses in Michigan, they also held a roundtable discussion in Michigan to get input on how the program could best be structured. Recognizing the tremendous challenges auto communities face in converting plants or brownfields into redeveloped spaces, the EPA has been tremendously helpful by reaching out to individual communities to put in place plans for clean-up and has put in place a staff member who can help communities write grant applications for EPA funds.

Our focus has not only been on helping communities recover after job loss, but on doing everything we can to maintain existing jobs and businesses. The Department of Commerce's Manufacturing Extension Program — which we have found to be one of the most highly-demanded programs by communities — in partnership with the Ohio Department of Development, is holding a workshop tomorrow (June 11) in Ohio with manufacturers to help companies diversify their customer base primarily with their existing product and service portfolio.

While these efforts represent discrete new authorities or initiatives, the Recovery Act, has provided a wide range of supports for auto and other communities that both combat the current economic developments and begin to build for our future economic success. In the near term, the Recovery Act provides families with needed tax cuts and help for states and local areas to avoid cuts to their education spending and maintain their schools, reduce the burden of health care costs, and maintain their law enforcement personnel. Looking longer term, the Recovery Act will enable the repair and improvement of the country's infrastructure; fund innovative research and development initiatives in advance vehicle manufacturing, smart grid development, advances in wind, solar or other alternative energy sources, broadband and health information technologies; and create job opportunities for Americans and propel the growth of health and new green or energy efficient jobs that will be the sources of high growth in the future.

Together these programs represent an investment in transforming our very economy. This will open up technology for US firms to produce the next generation of vehicles for the auto industry. Such programs will open up new markets for auto suppliers and other manufacturing companies to diversify into and they will provide workers the skills they need to fill these jobs. Rather than try to review all of the ways in which this comprehensive effort will be affecting auto communities and their workers let me focus on how the Department of Labor has been playing an active role in this effort.

For its part, the Department of Labor's Employment and Training Administration (ETA) has already made available to the states additional funding to extend the duration of unemployment insurance benefits, to increase benefit checks by $25, to provide administrative support to state employment services and to make funds available to states that modernize their systems. In addition, the Department has made $3.47 billion in Recovery Act funds available to support workforce investment activities. Such activities include retraining dislocated workers, summer employment for youth and community service employment for seniors. For states hardest hit by auto industry layoffs, Michigan has received $197,117,236 in Recovery Act formula funds for workforce investment and employment activities, while Ohio has received $153,073,770, and Indiana $67,142,603. These amounts are in addition to the regular funding these states received from the Fiscal Year 2009 appropriations for these activities.

ETA is specifically addressing auto industry layoffs through its programs. The Workforce Investment Act (WIA) authorizes National Emergency Grants (NEGs) to provide additional resources to expand service capacity at the state and local levels in response to significant worker dislocations. Since January 2009, ETA has awarded NEGs, or added additional resources to existing grants, in four automotive states -- Missouri, Ohio, Minnesota, and Michigan.

  • On February 26, 2009, Secretary Solis (I) awarded $2,199,132 to the State of Missouri (of which $1,099,566 has been released so far) to provide training and reemployment services to approximately 574 workers dislocated from 11 auto industry suppliers at 13 different locations.
  • INSERT DATE: A $10,000,000 NEG (of which $5,074,749 has been released thus far) has been awarded to Ohio to address statewide layoffs in the automotive industry.
  • On May 18, 2009, Minnesota was awarded $1,320,100 (of which $660,052 has been released thus far) to provide services to approximately 307 workers affected statewide by layoffs from 27 companies in the retail, service and manufacturing sectors of the automotive industry.

Additional resources have also been provided to existing automotive-related NEGs.

  • On May 5, 2009, an additional $771,713 was provided to the state of Missouri to serve 1,200 dislocated workers affected by the closure of the Chrysler assembly plant in Fenton, Missouri, as well as layoffs from Integram St. Louis Seating and Yushin USA.
  • On May 7, 2009, $4,125,000 in additional resources was added to Michigan's NEG to serve 1,500 eligible dislocated workers separated from automotive-related companies throughout the State.

Indiana is the only State with a large automotive presence that has not requested an automotive-related National Emergency Grant to date.

In addition to the NEGs, ETA administers the Trade Adjustment Assistance (TAA) program, which assists workers who have lost their jobs as a result of foreign trade. The TAA program offers a variety of benefits and services to eligible workers, including job training, income support, job search and relocation allowances, a tax credit to help pay the costs of health insurance, and a wage supplement to certain reemployed trade-affected workers 50 years of age and older.

Since June of 2008, ETA has issued over 200 TAA certifications for companies linked to the auto industry involving an estimated 34,000 workers. Companies include the General Motors Corporation, the Ford Motor Company, Chrysler LLC., Daimler Trucks North America, and numerous part-suppliers. The top three states with auto-related certifications since June of 2008 are:

  • Michigan, which had 59 certifications and received $51,482,594 in TAA funding for 2009;
  • Indiana, which had 23 certifications with 2009 TAA program funding totaling $24,104,903; and
  • Ohio which had 20 certifications and $21,976,331 in 2009 TAA program funding.

While the Recovery Act does not fund TAA, it did reauthorize and substantially change the TAA program. One of the most significant changes was to increase the maximum amount of TAA funds which may be used for training nationwide, from $220 million to $575 million. This increase will ensure that states have funds available to serve an increasing number of trade-affected workers under the reauthorized program. Since the effective date of the reauthorized and expanded TAA program (May 18, 2009), ETA has experienced a sharp increase in petitions under the program and expects the demand for the program to remain high.

Under the Workforce Investment Act (WIA), every state workforce agency is required to create and maintain a Rapid Response team. Upon notification of mass layoffs or plant closures, the Rapid Response team works with the company to provide immediate assistance and reemployment services for affected workers. In order to ensure that state Rapid Response programs, which are funded by formula resources provided to the states under the Workforce Investment Act, are ready to respond to lay-offs, the Department of Labor convened all of the Rapid Response Coordinators from the industrial Midwest at a day-long conference. At the conference we assisted the states in conducting readiness assessments of their capabilities and shared best practices so that states could provide a high quality level of service to impacted workers. Each state developed a plan for how to improve its program, with a commitment to work towards specific benchmarks.

The Department of Labor (DOL) will soon make available $500 million in competitive grants job training projects that prepare workers for careers in energy efficiency and renewable energy industries. Secretary Solis has already announced that $50 million of these funds will be set aside to ensure auto communities have access to these green job training opportunities. An additional $250 million in Recovery Act funds will be used for construction and repair of Job Corps facilities to also incorporate green technologies. Job Corps will also develop and implement green jobs training into the curricula of all appropriate occupations.

Green jobs will play an important role in our economic recovery. Through the Recovery Act, the Departments of Energy and Housing and Urban Development, the Environmental Protection Agency and other federal programs will be making large investments in programs and projects that will create green jobs. As states receive Recovery Act funding and implement training and re-employment strategies, the DOL encourages states to recognize opportunities to prepare workers for green jobs related to these other sources of federal funding. The Department and other federal agencies have already begun to coordinate the work to strategically implement programs that ensure cooperative interactions between investments in infrastructure and research and development on one side and job training and worker placement on the other.

While I have focused on the DOL's role, I want to emphasize that the Administration's approach realizes that there is no magic bullet to transform economies and that the help for auto communities and workers is not uni-dimensional. The challenges that they face did not appear overnight and they will not be solved overnight. We recognize that credit is needed for businesses to operate, to finance new product development and to explore new markets, as well as for new businesses to form. We know that towns confronted with abandoned facilities or housing need help with clean-up so that these assets can be put back into productive use. That high speed rail and other transportation projects provide the infrastructure for growth. That without high quality schools or access to higher education our children will not have the skills they need to compete for the good jobs of the future. And finally those communities that grow provide safe streets, invest in the development of our children and give us environments where we want to live. States and local government have and must play a central role in these efforts. Local communities are best positioned to chart their own course that reflects their individual assets and desires. What is the best course for Dayton OH may not be the way forward for Kokomo IN or Huntsville AL.

Our strategy will not only recognize but support these heterogeneous efforts. Whether it is through economic development planning grants to cities or towns or support to individual manufacturers for diversification, our efforts will support a rich array of ways auto communities want to grow. Some may look to build new industry clusters while others will build on regional strategies. Some communities may want to exploit the strengths of their anchor institutions such as their colleges and universities, while still others may want to foster an incubator environment in which a broad array of economic activities are fostered. Clearly, state and local governments must take the lead in developing these strategies, but local and national foundations have already proven that they can play a critical role in helping communities bring the necessary parties to the table and chart a course forward. They can provide needed seed money and support and an array of growth strategies. At the end of the day, however, job creation ultimately comes from the private sector. There can be no successful strategy in which they are not at the center and want to invest their capital in creating new markets and with them new jobs.

While I have presented facts and figures here today we must remember that behind the 'numbers' of the economic downturn and the auto crisis are human faces, people, facing challenges unlike what many have faced in our lifetime. I share the President and Secretary Solis' commitment to helping these workers and communities both in the near term as we emerge from the recession, but also over the longer term to build a base for future growth and to ensure that they share fully in our economic prosperity. I thank you for your time and look forward to our dialogue on this matter.

McAlinden, Sean P. and George A. Fulton. Contribution of the Automotive Industry to the U.S. Economy in 1998:
The Nation and Its Fifty States. A Study Prepared for the Alliance of Automobile Manufacturers, Inc. and the
Association of International Automobile Manufacturers, Inc. by the Center for Automotive Research, Environmental
Research Institute of Michigan and the Institute of Labor and Industrial Relations, The University of Michigan, Ann
Arbor, March 2001.

BLS data for motor vehicle and parts has employment at 1,330,300 in February 2000, declining to 676,600 in April 2009. In April 2008 it stood at 898,000.