If the Big 3 suffer, we all suffer
detnews.com
By Brian J. O'Connor
Thursday, November 20, 2008
Auto jobs are heavily linked to other employment across U.S.
If all the economists in the world were laid end to end, it's been said, they'd never reach a conclusion -- but one thing they do agree on is that should Detroit's Big Three continue to suffer, the U.S. economy will, too.
As federal policy makers weigh the overall economic cost of denying automakers federal loans and leave them to fend for themselves, they also must try to assess the job losses that would come if one or more of the Big Three shut their doors.
Whether the numbers prove that 1 out of every 10 U.S. jobs or 1 out of 80 is touched by Detroit automakers is irrelevant, says Dana Johnson, economist for Dallas-based Comerica bank. The important thing is, it's a lot.
"I would say 100 jobs out of 100 are touched," Johnson says. "It's an economy that's integrated, it's linked. What happens to your neighbor happens to you."
Ann Arbor's Center for Automotive Research estimates that 3 million jobs would be lost if General Motors Corp., Chrysler LLC and Ford Motor Co. shut their doors. At Moody's Economy.com. the total is estimated to be 2.6 million.
Crunch the numbers about whose job gets crunched in an auto industry collapse, and it doesn't matter whether the data comes from an industry think-tank or a national research firm.
Either way, it's about 2 percent of all nonfarm jobs in the country and equals, on average, the 2.8 million workers who've lost their jobs in the past 12 months. Stop and consider that those workers came from all walks of life, including the mortgage meltdown and the Wall Street crash, and that the total job loss has been enough to send the U.S. economy teetering on the brink of recession.
Now add in a total collapse of the domestic auto industry, and it doubles.
But the real question isn't whether the entire U.S. auto industry will collapse -- it's what happens if just a part of it collapses, such as the liquidation of Chrysler or the bankruptcy of GM. The problem in estimating the damage is how to measure the ripple effects. For all their economic influence, Detroit's Big Three themselves employ only a small portion of the workers engaged in the U.S. auto industry.
Direct employees who get a paycheck (for now at least) from GM, Ford or Chrysler total only 255,109, according to Moody's. That's only about one-third of the 767,000 people working to sell those cars at U.S. auto dealers. Those workers, in turn, are just part of the 2.3 million people indirectly employed by the Big Three, including auto suppliers.
All told, the direct and indirect jobs add up to 1.9 percent of the total U.S. workforce, notes Sophia Koropeckyj, managing director of Moody's Economy.com.
"It's about nine indirect jobs for every one direct job," Koropeckyj said. That includes not just the supply chain for automakers but also the spending of the relatively well-paid autoworkers at a coffee shop near a factory or a lunch spot near corporate headquarters.
That figure doesn't include what's called "spillover" work at auto repair shops, parts stores, tire dealers and other car-related services that would continue in business if an automaker fails. The idea is that even if your Buick is orphaned by a failed GM, you'll still get the oil changed.
"The actual indirect jobs for the entire auto industry are much larger than this 2.3 million," Koropeckyj said. "But they will not all go away."
But that doesn't mean some spillover jobs aren't hurt by an automaker shutting down, notes Susan Helper, a professor of economics Case Western Reserve University in Cleveland who specializes in the auto industry. Even if you're still getting your oil changed, a laid-off GM worker is probably changing his own instead of hitting Quick Lube.
"The spillover is when the GM worker has less income and they are buying less coffee and fewer clothes and things like that," Helper said.
Judging from how job loss affects spending in past recessions, she estimates that the equivalent of something between 0.4 and 1 spillover job exists for each auto job.
At best, Helper estimates job losses of 500,000 if GM was liquidated, still enough to risk sending the foundering U.S. economy from recession into depression -- partly because no one really knows just how deeply the roots of the U.S. automakers go into the rest of the national economy.
At worst, she estimates, the failure of GM could lead to 1.5 million or even 2 million jobs lost.
One problem is gauging how much damage would happen to suppliers who make parts for more than one automaker. GM, Chrysler or Ford could make up two-thirds of a supplier's business, but the loss of those orders is more than enough to doom the entire shop.
"There is a risk of system because we really don't know the overlap in the supplier base and we know suppliers are on the edge financially, and it wouldn't take much to push them over," Helper says. The ongoing credit crunch also would threaten the ability of a supplier to survive a big loss in orders from a troubled car maker, as well as making it harder for the unemployed workers to find new jobs.
"The auto industry is a big important industry -- there's no question about it," Comerica's Johnson said. "You don't want to say the whole economy depends on the auto sector, but there's no question that if you had a sudden shutdown of a major car company that would spill over and be of concern to the rest of the economy."
The only real question, as all the economists point out, is just how bad things would get. Let's hope we don't find out. |
