By Tim Padgett and Carmen K. Sisson

It’s a convenient American stereotype: Detroit makes cars, Dixie races them. But as the entire tortured debate in Washington over whether to bail out the ailing U.S. auto industry has shown, that distinction is as tired and broken as the Big Three’s business models. In fact, the political game of chicken that ended Friday with President Bush announcing a temporary $17 billion aid package for GM and Chrysler to stave off the immediate threat of bankruptcy has shown the rest of the country what the South has known for years: led by foreign carmakers like Toyota and Mercedes-Benz, Dixie is now Detroit’s rival in auto production.

And the foreign automakers based in the South, who account for almost a third of all cars built in the U.S., have now become the benchmark against which the Big Three are measured. As the various aid packages were being negotiated, first on Capitol Hill and then this week on the other side of Pennsylvania Avenue, one constant condition Republicans insisted upon was Detroit getting its wages and benefits down to the levels of the so-called transplant workers in states like Alabama, Tennessee, Georgia and Mississippi.

It was the clearest sign yet that the auto production boom has given the South not just a much-needed industrial boost but new political leverage as well.

When Southern politicians like Alabama Senator Richard Shelby blocked a $15 billion congressional bailout for Chrysler and GM, they gave their constituents something just as valuable as pork: some regional self-esteem, if not outright revenge. The Big Three automakers, Shelby insisted last week, “have basically failed” because of their bloated, rigid and outdated manufacturing methods, while the South’s lower costs and more flexible management schemes are the new exemplar.

“Shelby is defending the industry model of his state,” says Merle Black of Emory University in Atlanta, a southern politics expert. “A lot of southerners feel they’ve been talked down to for a long time by northern industry, so he doesn’t lose any votes by doing this.” Jason Ray, who has worked for both Mercedes and Chrysler in Hunstville, Ala., says the Big Three “have engineered a doomsday scenario where if they aren’t allowed to continue being irresponsible with money, including the billions from taxpayers, the U.S. economy will crash. American automakers need to learn to grow with the times or become obsolete.”

More than a few northerners feel the South — supposedly the last bastion of red, patriotic values — is being hypocritical by bending over backward for Germans and Japanese at the expense of U.S. companies. To make the point, a retired GM engineer this month set up a website called boycottalabamanow.com. But southerners ask who the hypocrites really are. “When the textile industry went down in the South and we were accused of being behind the times, we didn’t ask for a bailout — we just had to reinvent ourselves,” says John Jeter, a South Carolina author whose family owns a small chain of auto parts stores and whose new novel, The Plunder Room, examines the modern southern character. “So southerners feel it takes some audacity for northern businessmen who make millions to come holding out beggar’s bowls for billions.”

Not that southern sages like Black approve of an industrial civil war. “We’re all in this recession together,” says Black, who like many others is quick to note that Detroit’s collapse isn’t exactly good for the South, especially given the large number of auto parts production jobs that rely in part on the Big Three.

Still, most southerners champion their region’s low-tax, non-union style of economic development, which they credit for luring overseas car companies like BMW and Kia to build major plants from Kentucky to South Carolina to Texas. More important, after spending the 20th century as America’s industrial backwater — and after watching the conservative Reagan revolution they once led fade away in last month’s presidential election — they hail the idea that the South is rising again in the 21st century. “The sense of confidence is palpable,” says Jim Cashman, a management professor at the University of Alabama and a Chicago native who has worked in the auto industry. “Companies like Mercedes have legitimized the efforts of the New South.”

Alabama has been particularly aggressive. Since the early 1990s, the state has offered German-based Mercedes, Japan’s Honda and South Korea’s Hyundai a staggering $1 billion in tax incentives, abatements and infrastructure improvements to build plants there. The return on investment has been $7 billion, creating almost 50,000 direct jobs and another 70,000 in sectors like parts suppliers. The population of the town of Vance, where the 4,000-employee Mercedes factory is located, has leapt from 500 to 2,000. Unlike the local sawmill, fertilizer plant or rock quarry, residents feel Mercedes “is going to survive, no matter what,” says one woman who has five family members working there. “That’s what made Vance what it is.”

But before Dixie gets too smug, it should acknowledge a debt it owes Detroit, or rather Detroit’s labor union, the United Autoworkers (UAW). The UAW has made the Big Three’s labor force one of the world’s best paid and protected — clout that is now a focus of what’s wrong with Detroit. Still, the foreign automakers are in America in large part because, as their more fuel-efficient cars became popular in the U.S. in the 1980s and ’90s, the UAW lobbied to get them to build production plants here.

True, those Asian and European firms flocked to the South to avoid Detroit’s high-cost culture. But while southern auto employees extol the union-free, right-to-work rules of their states, the truth is that they might still be earning the basement-level wages of a Mississippi textile worker today if the UAW hadn’t leaned on the likes of Mercedes in Washington. “Mercedes wanted a much lower pay scale when it arrived here,” says Cashman, who notes that veteran southern autoworkers now earn “only fractionally less” than the average $27 an hour for Detroit workers (and often end up with more, thanks to the foreign car companies’ bonus systems). “If not for the UAW pressure, the starting pay would have been more in line with the going wage rate of this region instead of this industry.”

At the same time, southern workers have taught the UAW an important lesson about helping to keep that industry viable. The foreign companies enjoy not only the South’s lower legacy costs but a more flexible production culture. Unlike the Big Three, the southern car plants are far more agile when it comes to accommodating shifting market demand; and that’s due largely to employees’ willingness to exact fewer of the production rules UAW contracts are notorious for.

Part of that efficiency is what Edward Miller, a Honda spokesman in Alabama, calls a modern “harmonious flow” — having nearby vendors supply parts, and workers assemble them, as they’re needed rather than stockpiling too much inventory or flooding the market with, say, gas-guzzlers no one wants to buy anymore. “Southern communities understand you can’t tie organizations down with restrictions,” says manufacturing management expert David Miller of the Alabama Productivity Center. “Successful auto companies in the South provide all the positives you’d find in a union shop.”

Perhaps. But labor advocates still fear for U.S. workers if the South’s automotive industry supplants Detroit as the template. And it’s not as if all is as shiny as a new Lexus in Dixie right now. The Mercedes plant in Vance recently had to cut back to a four-day workweek; and with even Japanese powerhouse Toyota facing U.S. sales slumps, the company this week said it’s delaying the startup of a new plant in Mississippi that will make its Prius hybrid car. Even workers like Ray now feel that a union “would definitely benefit” Dixie autoworkers; and either way, says Cashman, the New South’s economies “still have many, many miles of training and education to go.”

Still, you don’t hear any of the Big Three these days even thinking of opening a $1.2 billion, 2,000-employee facility in Georgia, as South Korea’s Kia is set to do next year. It’s enough to make a NASCAR driver take a victory lap.

HUNTSVILLE, Ala. – Trembling hands reach out to brush the delicate embroidery of a white star on a navy-blue field. Tears glisten in pale blue eyes and a soft voice begins to quaver as Charmane Bellamy talks about her job as a seamstress. All around, the Juki sewing machines whir relentlessly, underscoring her words with the steady staccato of one of our nation’s oldest industries.

From her perch high atop the factory floor, she pulls red and white stripes through her hands over and over, being careful to keep the seams neat and tidy. Always a perfectionist, she is even more prudent here. This isn’t just any flag – it’s Old Glory. And this isn’t just any version – it’s an interment flag to drape a veteran’s coffin, one last embrace from a grateful country.

Ms. Bellamy is one of 27 people working the flag line at Phoenix Industries in Huntsville, Ala., and the company is one of only seven in the US approved to supply the 5-by-10-foot ceremonial flags to the US Department of Veterans Affairs.

As the nation celebrated the Fourth of July holiday with the usual pride and patriotism, Phoenix had just turned out its 1 millionth flag – a milestone the company will recognize with a special program Wednesday. Amid the piles of fabric and clacking machines, it’s clear this isn’t just another textile factory turning out another pair of jeans. This product infuses many workers with a sense that they’re doing more than collecting a paycheck, especially in a time of war.

The factory is notable, too, because of the people doing the work: 85 percent of those on the flag line have some type of vocational disability, ranging from deafness to autism. “We live and die together,” says Bryan Dodson, president of the Huntsville Rehabilitation Foundation, a local nonprofit that operates Phoenix Industries. “That’s what the military teaches: My life depends on you and yours depends on me. If one of us is hurting, we’re all hurting.”

For the past 11 years, Phoenix has produced an average of 83,333 flags per year – 18 percent of the government’s total annual supply. But recently the company was asked to double production to 650 flags per day. There are strict requirements: The flags must be 100 percent American made, from the cotton to the grommets.

It’s a painstaking 21-step process, and every employee plays a hands-on role. It begins in a small room adjacent to the factory, where a “bologna slicer” cuts 72-foot rolls of cotton into smaller rolls. On the factory floor, employees shear the rolls into 125-yard red and white stripes. Next, the stripes are separated and trimmed into the seven short stripes that comprise the top of the flag beside the canton and the six long stripes that make up the bottom. The canton is shipped in long bolts from a plant in North Carolina, where workers carefully stitch each star by hand and set it within its field.

Like America itself, the people on the flag line come from all walks of life, ranging in age from 20 to 72. Some have GEDs, while others have doctorates. Some have never held a job, while others are returning to the workforce after an interruption or setback. Some have mental or emotional challenges, while others have health issues. Together, they work as a team.

Supervisor Shirley Lanza gazes across the floor, calling employees by name. “That’s Alandress Caudle,” she says, pointing to a one-man dynamo at the end of the line.

She smiles as he throws his whole body into folding flags, his lithe frame jerking back and forth in a red, white, and blue blur of work-meets-interpretive dance. Mr. Caudle, 30, has been with Phoenix Industries since he was 19, finding an easy home for his high-energy personality. Swiftly, he weaves between tables, moving materials and refreshing supplies. “He takes care of everything,” Ms. Lanzo says. “He’s so fast and so efficient that when we have to take over for him, we just can’t keep up.”

And then there’s Richard Kelly. Lanzo admits that when he first came here four years ago, his attention to detail left them both frustrated at times. Mr. Kelly loves to keep things neat and orderly, to the point that in the beginning, he would slow the line down to carefully fold a flag or examine a flaw. In time, he’s learned to be precise but efficient, finding a happy medium.

A quick stop by his station elicits little more than a glance as he whips each flag across the table, searching for flaws and snipping stray threads. “You can stand there as long as you don’t get in the way,” he says, smiling. He seems to enjoy his moment in the spotlight, but makes it clear he won’t stop to chat. Any fingers that get too close to his scissors are in danger of being snipped like the threads he seeks.

With a matter-of-fact tone, he explains how the job has set him free. A few years ago, he was 27 and still living at home in what he describes as a “stressful” environment punctuated by daily clashes with a stepfather who couldn’t understand him. Passionately artistic and relentlessly organized, Kelly relishes his new one-bedroom apartment. There, he’s able to stay up late, composing orchestral music and filling notebooks with reams of poetry and fiction.

Tossing a flag back to another employee, he calls out “Grommet missing!” then turns to address a stack of flags that have fallen to the floor. “That can’t be good,” he says. “Oh, here’s the problem.” In a flash, the flags are back in place.

Nearby, Jean Wright hems stripes together. Wright served 15 years in the Army and came to Phoenix after injuring herself on another job. Without hesitation, she says that even though she “couldn’t tell a bobbin from a kill switch” when she started, without the flag line she would have ended up on welfare. She knows that one day one of those flags will drape her own coffin, but it’s something she tries not to think about.

Shirley Lanza can’t forget. Her grandson just returned from Iraq and her brothers both served in the military. “Every time I see a flag go out the door, I wonder who it’s going to be for,” she says. “It just hits close to home.”

Bellamy agrees. Her son, Michael, who enlisted after being swept up in the fervor of post-9/11 patriotism, recently returned from serving with the Air Force in Iraq. He’s in her thoughts a lot as she sews. “It makes it more meaningful to know that one of these days we may receive one of these,” she says. She pauses for a moment, then turns away, as if reminded that more pressing matters await. With a flip of the switch, her machine is humming again, the stripes running effortlessly through her hands.

The shift is almost over, but work remains.