Thursday, August 27, 2009
Last Auto Plant in California is Closing
Toyota announced that they will close the sole remaining automobile assembly plant in California - the NUMMI plant in Fremont, near San Francisco. Toyota had been in a partnership with GM at the plant, and GM ceased making cars there just a few weeks ago.
This closing has lessons for California, as the state's new law AB 32 will bring ever more such closings. It is quite instructive that Toyota also announced they will increase production at their assembly plant in San Antonio, Texas when NUMMI closes. It is no secret that Texas is a much more business-friendly state than California, it has better educated workers based on high school performance tests, has lower taxes, lower utility costs, cheaper real estate, all of which have led many other companies to depart from California and relocate there.
AB 32 will bring further increases to California's electric prices, and notwithstanding the California Air Resources Board's claims, businesses will have a very difficult time in reducing power consumption more than the price increase. The bottom line for a business is all that matters in the profit-and-loss world, but not in the government tax and spend world. Increased utility costs make a company's products less competitive in a world market, or even when other states can make the same product more profitably.
AB 32 will also increase the cost of vehicle ownership by forcing large increases in ethanol in gasoline, and bio-diesel in diesel fuel. As all goods move in the state by the use of diesel fuel either by train or by truck, all goods will be higher priced. Further, all services will have higher costs since electric power price increases, and cost of supplies increases. The reduced business income in the state will decrease the tax revenues, as there is zero tax revenue from a business that closes its doors.
The state must then either increase tax rates on the remaining few businesses that cling to a false hope that the economy will increase, or cut services, or cut the state payroll, or borrow ever more money to keep the state running. We have seen this game played out several times now, and it does not get any better.
ARB insists that the green economy will save the state, creating thousands of good jobs and restoring the tax revenues. This is a false, false hope. By closing the NUMMI plant, approximately 30,000 jobs are lost, counting direct and indirect jobs related to the plant. With ARB's claims of small businesses with green roots growing the economy, and using an average of 5 employees per small business, there must be 6,000 new small businesses created just to equal the loss of that one factory.
The unemployment rate in California, as of latest figures for July 2009, was 11.9 percent, an all-time record. The rate continues to increase as the economy worsens.
AB 32 must be repealed, and repealed now.
I speak professionally on AB 32 and its effect on Californians, and invite offers to speak to various groups. I have spoken on AB 32 in June 2009 in Los Angeles to the American Institute of Chemical Engineers, will speak on the same topic in September to the Northern California section of AIChE, also to the annual meeting of AIChE in November in Nashville, Tennessee, and again in November in Ventura, California to the American Council of Engineering Companies.
Roger E. Sowell, Esq.