Tag: loan guarantees

The United Automobile Workers’ strike against the Big Three manufacturers that began earlier today is exacerbating the most significant political vulnerability of President Joe Biden’s drive to build a clean-energy economy.

A trio of bills Biden passed through Congress during his first two years in the Oval Office has generated a torrent of private-sector investment into clean-energy projects. But so far most of that green investment and the jobs it will create are flowing into red-leaning communities that are generally hostile to both the Democratic Party and labor unions.

Congressional Democrats provided all the votes for the legislation that is catalyzing the rapid growth of the new green economy. But with so many of the new energy projects benefiting red places, many people in progressive circles worry that this historic transformation will fail to generate either sufficient political rewards for the president and congressional Democrats, or as many good-paying, blue-collar jobs as Biden has repeatedly promised.

Steven Greenhouse: Biden’s labor-climate dilemma

Fear that the shift to electric vehicles will reduce the number of quality jobs in the auto industry is the backdrop for the strike the UAW launched at midnight today. In both public and private, union officials have made clear their belief that the auto industry is using the technological transition to mask a second, economic, transition. They worry that the companies are using the shift from internal-combustion engines to carbon-free electric vehicles to simultaneously shift more of their operations from high-paying union jobs mostly in northern states to lower-paying, nonunion jobs mostly in southern states.

Moreover, the union and its allies worry that the massive federal subsidies Biden’s agenda is providing the companies for the EV transition is inadvertently underwriting that transition toward lower-wage and nonunion plants. As Shawn Fain, the UAW’s new president, put it earlier this week: “There’s a lot with the EV transition that has to happen, and there’s … hundreds of billions of our taxpayer dollars that are helping fund this, and workers cannot continue to be left behind in that equation.”

As the strike approached, the Biden administration took conspicuous steps to respond to those concerns by announcing a suite of multibillion-dollar Department of Energy loans and grants designed to  incentivize the auto companies to convert existing, unionized plants to EV production.

“The president’s policy position is absolutely clear: He’s pro-union,” one senior White House official, who asked not to be identified while describing internal discussions, told me. “He thinks that companies that are receiving the benefits should respect the right to organize, should not interfere with workers’ ability to exercise that right, and he wants to see these jobs be good union jobs. From a policy perspective there is no daylight between the president’s policy preferences and where the UAW is, or the other unions are.”

The challenge for the Biden administration in delivering on that pledge is the decisions that the auto companies and other industries are making in response to the bills he signed to promote more domestic investment: the bipartisan infrastructure law, a measure to encourage more U.S. production of semiconductors, and the Inflation Reduction Act, which contains federal assistance for the domestic manufacture and deployment of low-carbon energy sources.

The tax subsidies and federal grants and loans in those bills have triggered a towering wave of new domestic investments across a broad range of industries producing clean energy. The big auto manufacturers alone have announced nearly $90 billion in spending on manufacturing facilities to produce EVs in just the past two years, according to the Center for Automotive Research, a nonpartisan Michigan-based think tank. Suppliers to the companies, including firms producing semiconductors for automotive use, are investing billions more in the EV transition. Brookings Metro, a nonpartisan think tank, calculated that total private-sector investment in EV manufacturing under Biden has reached nearly $140 billion. This building surge dwarfs the typical amount of annual investment in the auto industry over the past quarter century, but still likely represents only a down payment on what’s ahead. “There’s a lot of innovation that is going to happen over the next 20 years, in terms of product, process, technology,” Alan Amici, the center’s president and CEO, told me.

For Democrats, the rub is how much of this capital is flowing into red places hostile to unions and represented by House and Senate Republicans who voted against the legislation that triggered the investments. (Every House Republican this spring also voted to repeal all of the Inflation Reduction Act’s incentives for clean-energy production.) The biggest recipients of the new investments include more red states than blue ones, Brookings has determined.

Red states are receiving so many of the new projects partly because they have lower tax rates and electricity costs. But most analysts agree that companies have also channeled so much of their new investments toward red states because most of them have “right to work” laws that make it more difficult for unions to organize.

In the auto industry, this preference for states resistant to unions has translated into a surge of investment in the South. Brookings Metro calculated that the South has attracted 55 percent of the total private investment in electric vehicles and batteries under Biden. That’s more than double the portion of the new clean-vehicle investment that has flowed into the Midwest, whose existing auto plants are largely unionized. That torrent of new money includes plans to build EVs or their batteries by Hyundai and Rivian in Georgia, Toyota in North Carolina, Tesla in Texas, BMW in South Carolina, Mercedes-Benz in Alabama, General Motors in Tennessee, and Ford in Tennessee and Kentucky.

The EV investments announced so far are projected to generate at least 65,000 jobs across the region, Stan Cross, the electric-transportation-policy director for the Southern Alliance for Clean Energy, told me. Far more job growth is virtually certain in the years ahead, Cross said, largely because such investment patterns are self-reinforcing: Companies that provide parts for the big manufacturers are already locating around their new southern plants, such as the $1 billion in investment announced by suppliers near Hyundai’s Georgia facility.

This southern EV boom is reinforcing a long-term shift in the auto industry’s center of gravity that has weakened the UAW’s position. Heavily unionized, Democratic-leaning Michigan still employs many more people in the industry than any other state. But starting in the mid-1990s in plants by Mercedes in Alabama and BMW in South Carolina, the industry’s employment has steadily shifted to the South. Since the early ’90s, the South’s share of total auto-industry employment has roughly doubled from 15 to about 30 percent, while the Midwest’s share has fallen, from 60 to about 45 percent, Karl Kuykendall, a regional economist at S&P Global Market Intelligence, told me. Kuykendall said he “would not be surprised” if the pace of this regional transition accelerates as the companies move deeper into the technological transition to electric vehicles.

Hardly any of the auto plants in the South are unionized. And wages even for manufacturing workers are much lower in the region and in other red states than in the Midwest, as Michael Podhorzer, a former political director for the AFL-CIO, has calculated. The disparity between largely union and nonunion regions across the U.S. creates an enormous challenge for the UAW. In the strike that began this morning, it is seeking a raise of about 40 percent over the next four years, and the restoration of automatic pay increases for inflation, as well as health and retirement benefits that it surrendered when the companies faced bankruptcy amid the 2008 financial crisis. But even if the union succeeds at winning a favorable contract, that could just increase the incentive for the auto industry to shift more jobs to nonunion plants across the South.

While foreign automakers have invested heavily in the South, the fabled Big Three domestic auto manufacturers (General Motors, Ford, and Stellantis) still mostly rely on facilities across the industrial Midwest. But the announcements by Ford and GM that they plan to build battery plants in Kentucky and Tennessee may signal a shift in that strategy. As important to the UAW, Ford, GM, and Stellantis are structuring their EV-battery plants, in the North and the South, as joint ventures with foreign partners that are not subject to the national labor agreement the companies are now negotiating. The union has to negotiate separate contracts with those plants—where the companies are offering much lower wages than in their unionized facilities.

“From all evidence, automakers appear to be utilizing the shift to electric vehicles to do everything in their power to lower job quality for the very workers they are relying on to make this transition happen,” Jason Walsh, an executive director of the BlueGreen Alliance, a coalition of labor unions and environmentalists, told me. Those concerns have prompted the UAW to demand in the contract talks that the auto companies guarantee that workers now building internal-combustion-engine vehicles will be assured jobs as the companies switch toward manufacturing more EVs.

Early on, the Biden administration appeared somewhat obtuse to these concerns, even though Biden has sympathized more overtly with organized labor than any other Democratic president in decades. Speaking before a Silicon Valley industry group in early June, Energy Secretary Jennifer Granholm turned heads among labor leaders when she said the administration was “agnostic” about where companies choose to site their clean-energy investments.

Her department, perhaps reflecting that perspective, a few weeks later approved more than $9 billion in federal loan guarantees to Ford and a Korean partner to build their EV-battery plants in Kentucky and Tennessee, two right-to-work states. Fain, the union president, immediately issued a statement condemning the loan guarantees and declaring that the administration was “actively funding” a “race to the bottom” in wages and benefits “with billions in public money.”

Fain’s message appears to have been received. The administration’s tone was different in late August, when the Energy Department announced that it was making available $2 billion in grants and $10 billion in loan guarantees under the Inflation Reduction Act (as well as another $3.5 billion in grants under the infrastructure bill) to subsidize the conversion of existing plants to make electric vehicles and their batteries. “We are going to focus on financing projects that are in long-standing automaking communities, that keep folks already working on the payroll, projects that advance collective bargaining agreements, that create high-paying, long-lasting jobs,” Granholm told reporters at the time.

That message reflected Biden’s own priorities, the senior White House official told me this week: “All I would say is, the president is not ‘agnostic’” about where the clean-energy investments are flowing. “He’s the president for all of America. But all of America ought to respect the right to organize. He is trying to move the system toward good-paying jobs and more union density.”

Labor allies agree the administration is now focusing more on the potential challenges for workers in the EV transition than it did earlier in Biden’s presidency. The late-August Energy Department announcement “is a very clear indication that the Biden administration is hearing what union workers are saying and is trying their best to be responsive to that,” Walsh said.

The problem for the administration is that it has limited tools to shape how the auto companies make their investments. Generally, under the kind of federal loan and grant programs that Granholm made available in August, the administration can encourage companies to preserve existing plants and also to remain neutral in labor organizing campaigns when the firms open new clean-vehicle facilities. All indications point to Biden using that leverage more aggressively than he did earlier in his presidency. Over time, the senior White House official said, the administration “has strengthened its negotiating posture” to demand “stronger community benefits” from companies seeking the loans or grants.

But the Inflation Reduction Act’s biggest incentives for building electric vehicles are generous tax credits for both producers and consumers. And those credits are available to companies that build and source a specified share of their materials for EVs domestically whether or not they use union labor. When the House passed its version of the Inflation Reduction Act in 2021, it included another $4,500 tax credit to consumers for EVs built largely with union labor, but Senator Joe Manchin of West Virginia, a Democrat, insisted on the removal of that provision as one price for his vote that allowed the overall package to pass the Senate.

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That now looks like an extraordinarily consequential concession. “This is happening because Joe Manchin pulled the union requirements out of the IRA and that really opened the door to this perverse situation where, by law, the administration has constraints about how far it can push to ensure that there are going to be good quality jobs in this transition,” says Adam Hersh, a senior economist at the Economist Policy Institute, a left-leaning think tank.

Looming over all these maneuvers is former President Donald Trump’s relentless attack on Biden’s clean-energy agenda. In speeches, Trump has repeatedly declared that Biden’s intertwined proposals to promote EVs will “kill countless union autoworker jobs forever, especially in Michigan and the Midwest.” Trump, and some of the other 2024 GOP candidates, have pledged to repeal the IRA’s clean-energy incentives as well as Biden’s proposed fuel-economy standards for cars and light trucks, which would require the companies to massively shift their sales toward EVs over the next decade. In effect, Trump is presenting the transition to EVs as another example in his broader claim that the left is seeking to uproot and transform America as his supporters know and understand it.

While many labor leaders have endorsed Biden for a second term, Fain has pointedly withheld the UAW’s endorsement. And Fain has publicly warned that Trump’s denunciation of the EV transition could find a receptive audience among his members if the union can’t win a generous contract and strong guarantees of job security. Given the importance of the industrial Midwest to the president’s reelection hopes, Biden may have nearly as much at stake as Fain in the outcome of this strike.