Auto industry collapse would bring pain too costly to bear

Times West Virginian

November 16, 2008 02:50 am

— The numbers vividly portray a dire situation.
The nation’s Big Three automakers — General Motors Corp., Ford Motor Co., and Chrysler LLC — are seeking an emergency infusion of cash as the industry is being battered by current economic conditions that are affecting sales and making credit much tougher to arrange.
The U.S. Senate, in a lame-duck session, is scheduled to take up a $25 billion bailout package on Monday.
What would a collapse of the domestic auto industry mean to the country?
Effects would certainly be felt far from the industry’s base in Michigan — extending to virtually every community in the United States.
The Big Three, for instance, are the largest purchasers of domestic steel, aluminum, glass and computer chips.
The Associated Press reported last week that a study by the Center for Automotive Research in Ann Arbor, Mich., estimated that the failure of the Big Three would eliminate up to 3 million jobs, including those at parts suppliers and smaller businesses that rely on the automakers.
State, local and federal governments would lose more than $150 billion in tax revenue over three years, the study said.
General Motors is currently in the most precarious situation. It is spending its operating cash at a rate of $3.1 million an hour, and company officials have warned it might not survive until January unless the government provides help.
Supporters of the auto industry bailout, according to the AP, have predicted that even if just GM collapsed, the failure could bring down the other two companies — and even the U.S. operations of foreign automakers — as parts suppliers run out of money and shut down.
“We are all connected by some very thin threads, and if any piece of the chain from the manufacturers to the small suppliers fails, the whole thing could fail,” said Ann Wilson of the Motor & Equipment Manufacturers Association.
Don’t forget the thousands of auto dealers across the nation. The National Automobile Dealers Association wants Congress to approve new tax breaks for buying cars and trucks as part of a total package.
“That legislation needs to operate to ensure the presence and the viability of the dealer network. The two go hand-in-hand. You can’t have one without the other,” said Andy Koblenz, an association executive.
The Big Three have been taking steps to address severe problems they have faced for years — including labor costs that are far higher than their global competitors. That includes “legacy costs” in benefits to workers no longer employed in the industry.
Automakers point out that they have been cutting jobs, consolidating engineering and design, and making plants more efficient. The Big Three have cut their combined U.S. hourly work force more than 40 percent since 2005, from 244,000 to about 139,000.
David Cole, chairman of the Center for Automotive Research, said automakers will see more profits — about $2,000 per vehicle — as the cuts take effect. The increased profits, coupled with about $1,000 per vehicle in savings from a cost-cutting contract with the United Auto Workers, will allow automakers to repay debt to existing creditors plus the government, Cole told the AP.
Let there be no doubt the country is tired of hearing about bailouts, including the $700 billion package designed for banks and other financial firms. The cost of each billion of a bailout is about $4 for every man, woman and child in the country.
Sending a lifeline to the Big Three is going to be costly, but it will be a shadow of what the country would feel from the cascading catastrophe that would result from the collapse of the automakers.