3 million auto industry jobs at risk

[DainBramaged]

Nearly 3 million Americans would lose their jobs in one year if the Detroit 3 eliminated their U.S. operations, a Center for Automotive Research study says.

The report projected the toll on the U.S. economy if General Motors, Ford Motor Co. and Chrysler LLC were to shut down. In another scenario, the study calculated the economic impact if the Detroit 3 reduced employment and production by half.

The research group released the study today after the election of Democrat Barack Obama, who prepares his move to the White House as Washington considers proposals to aid the industry. Among them: GM's quest for federal funding to complete a merger with Chrysler.

"To permit any of the Detroit 3 manufacturers to collapse would scar the U.S. economy further at a time when it can ill-afford another blow," said Dave Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "As policymakers consider their positions on assistance to the auto industry, they must decide: Is an ounce of prevention indeed worth a pound of cure?"

Suppliers would tank, too

Under the Detroit 3 shutdown scenario, lost jobs would include U.S. operations of import-brand automakers because U.S. suppliers also would collapse, according to the study. The market for their parts would fall by more than half.

Import-brand automakers would not lay off U.S. workers and would expand over three years to incorporate 20 percent of the Detroit 3's former output. But nearly 1.8 million jobs would still be gone by the third year, the study said.

The lost tax revenue and Social Security receipts as well as increased unemployment payments would cost the U.S. government about $60 billion the first year and $156.4 billion by the end of the third year.

In the second scenario, the United States would lose 2.5 million jobs in the first year and a total of 1 million within three years if Detroit 3 production were to fall by half from 2007 levels. The crisis would cost the U.S. government $108 billion over that span, the study said.

This "recovery'' scenario would occur after surviving domestic automakers helped resurrect the most viable domestic suppliers and found enough overseas parts makers to restart assembly lines, study author Debbie Maranger Menk said in an interview.

'Strong hand'

Automakers "would probably offer a strong hand of help to the suppliers who were strong enough to recover," Maranger Menk said.

The study said one scenario or the other "is probable within the next 12 months."

Investor Wilbur Ross, who owns supplier International Automotive Components Group, echoed the study's findings in an interview today on the CNBC cable TV network.

GM and Chrysler "need something like $10 billion to pay the one-time cost of merging,'' Ross said. "That's a very cheap investment.

"It would be a very quick, easy thing. I can't imagine a cheaper way to protect a very, very large number of jobs."

http://www.autonews.com/article/20081105/ANA02/811059975/1128

[RUMMYisFROSTED]

1. Let's put these folks to work on a Maglev.

[hogwyld]

6. Public transportation projects

and alternative energy and the associated infrastructure build out would be the long term solution. With peak oil, the end of the automobile is within sight.

[DainBramaged]

7. Peak oil huh. Really. How come OPEC is cutting back millions of bbls. per day?

[TreasonousBastard]

2. Just shut down? Who says they're gonna just shut down...

when people are buying well over 10 million cars a year. Wasn't the high point around 15 million a year?

Somebody's going to make those cars.

[DainBramaged]

3. K&R for all of the concerned members

[Earth Bound Misfit]

5. The silence is deafening...

[Earth Bound Misfit]

4. Too big to fail?

http://www.latimes.com/business/la-fi-carstocks10-2008oct10,0,6199482.story

Given the automakers' pervasive presence in the U.S. economy and their value as symbols of industrial might, many believe they wouldn't be allowed to go under.

Amid concerns about access to credit, low consumer confidence and precarious cash positions, the debt ratings of the U.S. carmakers have slid deep into junk range. GM, once AAA rated, is now a B-, and Ford is slightly above it at B. On Thursday, Standard & Poor's said it would consider further downgrading GM. And this week, industry forecasters said U.S. car sales would be down 20% this year compared with 2007.

It's a grim financial picture, but talk of the companies' filing for bankruptcy protection has been surprisingly muted. Financial and industry experts are speculating that the automotive giants may simply be too integral to the economy to go under.

--snip--

Beyond just selling cars, the Michigan automakers have a huge financial reach, representing millions of jobs in the supplier, sales and aftermarket sector; they each have stakes in large financial services companies selling loans, leases, insurance and, in the case of GM, mortgages; and their value as symbols of U.S. industrial might is something few politicians are willing to overlook.

--snip--

Bruce Clark, an analyst at debt rating service Moody's, acknowledged that "their balance sheets are very weak" but said he would be surprised if either company went belly up. "It's not that a voluntary filing can't happen, but the costs associated with the bankruptcy of an automobile manufacturer are generally too high."

--snip--

According to Clark, a bankruptcy filing would probably have terrible effects on the residual value of cars and their warranties, making it even harder to sell new cars as consumers gravitate to other, more stable carmakers. That, he said, means that carmakers would choose to stay out of bankruptcy far longer than companies that might normally see it as a way out of untenable financial straits.

GM has a 49% stake in GMAC, a huge lender that not only finances car loans but also holds billions of dollars in residential mortgages. Ford, too, has a large finance arm, and both used their status as lenders to get the companies put on the Securities and Exchange Commission's list of firms temporarily protected from short sales. Executives at both companies have said they expect that under the $700-billion rescue package passed by Congress last week, they will be able to sell impaired securities on their books to the Treasury Department.

But perhaps the most compelling argument against going under comes as a result of the companies' unique position in American industry.

Despite perilously small market capitalizations -- GM is now worth less than $3 billion -- the two continue to bring in massive revenue and spread their money over a huge number of people. With more than 350,000 employees between them, they are true Goliaths, and when one factors in the estimated six indirect jobs created by every Ford and GM worker, nearly 2.5 million jobs are tied to the Big Two (Chrysler is privately held). By comparison, the U.S. has lost about 760,000 jobs this year.

Add to that the deeply symbolic role GM and Ford have in the country's industrial history, and many believe that no politician would ever let such a failure happen.

ETA: :kick: too late to Rec