Monday, November 03, 2008

Possible ramifications of a Big Three failure

If you're one of the skeptics inclined to let one of the domestic automakers fail, read this article in the Detroit News. [emphasis added]
Auto manufacturers and related businesses employ as many as 3.1 million workers across the United States, a broad network of jobs that loom large for federal officials considering taking steps to bolster domestic carmakers whose plummeting sales have created a cash crisis that threatens the very concept of the Big Three.

Every direct job at an automaker in the United States creates five more jobs, said Sean McAlinden, chief economist and vice president for research for the Center for Automotive Research in Ann Arbor. Two of the five are related to suppliers or dealers; the other three are spinoff jobs at businesses where auto industry workers spend their paychecks.

The next closest industry to autos is high-tech, where each job creates a total of four, including spinoffs, he said. By contrast, one Wall Street position creates a total of about 2.5 jobs, yet Congress expedited aid to the financial services sector this year.
Also, the problems in our economy aren't totally because of the housing crisis:
Declining auto sales have contributed to the nation's economic downturn, but that hasn't diminished the industry's importance, said Charles Chesbrough, senior economist for CSM Worldwide in Northville, an automotive market research firm.

"We won't see a turnaround in the economy as a whole," he said, "until we see improvement in the auto industry."
The Center for Automotive Research plans on releasing an analysis later this week of the impact it would have on our economy if one of the Big Three fail. It goes beyond job losses.
McAlinden said the resulting drop in tax income and other losses over three years would far exceed the amount being sought in government aid. When the jobs tied to everything from buying a car to washing it and refining the gas that fuels it are added to the total, more than 14 million U.S. workers -- about 1 in 10 -- can draw a line from their job back to an auto factory or office worker, according to CAR.
Scary stuff to even contemplate.

(Cross-posted at Blogging for MI)


abi said...

Good job of connecting the dots.

My first reaction to the story about the bailout request was - yep, there's another huge industry with its hand out. But you make a convincing case for it.

Plus, didn't the US end up making money on the Chrysler bailout?

Kathy said...

Abi, I don't know if the US made money off the bailout, but I do know that the money was paid back - I'm assuming with interest.

Loaning money to one of the Big 3 wouldn't normally be something I'd support either, but thanks to the recession we find ourselves in I'm being forced to look at the situation differently. Money - and lots of it - is going to be involved either way. If they loan them the money, it won't prevent layoffs, but it will keep more workers on the job earning money and paying taxes.