Numbers and the auto industry

If Detroit Falls, Foreign Makers Could Be Buffer:

"You would have an auto industry in the United States more like that of Mexico and Canada: foreign-owned," said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich., which describes itself as a nonprofit organization that has "strong relationships with industry, government agencies, universities, research institutes, labor organizations" and other groups with an interest in the auto business.

Like Canada! Now that's scary. Here are some interesting numbers from the piece:

The transition to that new equilibrium would surely be painful. The big American companies employ about 240,000 workers, and their suppliers an additional 2.3 million, amounting to nearly 2 percent of the nation's work force.

The outright failure of General Motors would eliminate the biggest auto employer and more than 100,000 manufacturing jobs. That is roughly the number of jobs already lost this year at the nation's automakers and their suppliers.

...

Even in this year of plunging car sales, the automakers and their vast supplier network still account for 2.3 percent of the nation's economic output, down from 3.1 percent in 2006 and as much as 5 percent in the 1990s, according to government data. More significant, economists say, 20 percent of the shrinking manufacturing sector is still tied to the automobile industry.

...

The American automakers, of course, have bought more and more parts from overseas. But 85 percent of their products are made in North America, compared with 60 percent for the foreign-owned automakers, said Dan Luria, research director at the Michigan Manufacturing Technology Center.

...

But if the current downturn is prolonged, it might be too late. In an industry capable of making 17 million cars a year, sales have dropped to an annual rate of only 10 million vehicles made here.

"None of the Big Three -- and perhaps not the transplants -- can make money at 10 million," Mr. Luria said. "The transplants are O.K. at 12 million and the Big Three at 15 million or so."

Annual sales of autos and light trucks have been at least 15 million through most of the last decade.

...

The elimination of many more workers, most of them union members and earning upwards of $20 an hour, would be devastating in Michigan, Ohio and Indiana, where the American automakers and many of their suppliers are concentrated. In fact, many of those jobs may disappear even if the companies win government assistance.

But other employers would take their place over time. As the foreign companies stepped up production to replace what would be lost by an American company's collapse, the transplants would add to their existing work force of 78,000, replacing many of the lost jobs, although at lower wages, with fewer benefits and at nonunion factories in other parts of the country.

It's great for UAW members that they can get jobs which pay well with benefits, or at least if they have them. But that's not the lot of most Americans without a college degree; since 1970 only for a short period during the late 1990s did the non-college educated sector of the population realize real gains in income. A major background condition which obviously looms over this article is that unionized American auto-markers are always going to be saddled with higher fixed costs in terms of labor input. Unless we nationalize the auto-industry we'll almost certainly face the same problems when the next recession shows up and the threshold of demand for high-margin vehicles craters. Detroit can generate more revenue per unit of goods than foreign auto-markers, but that's irrelevant when you take into into the higher cost per unit because of pensioners, etc.

If you assert that there's a structural problem with the American economy and how it rewards the non-college educated, this is just a band-aid. UAW members look to have relatively good labor contracts because most Americans with their skill level and education are being marginalized. This is a big issue, and one which society needs to address. A bailout will distract from that, and it is fundamentally not fair to all those who work for companies who aren't going to be backed by the full faith and credit of the American government. In other words, the taxpayer.

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Carmakers in America are now facing what miners and steelmakers in France/Germany/Benelux/the UK have faced 30 years ago.

Huge industries, providing the lifeblood of entire regions, suddenly finding themselves hopelessly uncompetitive and unsustainable.

Each of these countries dealt with the problem in different ways. The French tried to soften the blow as much as possible. Thatcherite Britain just axed the entire industry. It's not difficult to see the difference in outcomes. White working-class neighbourhoods in the UK are now strikingly similar to the immigrant ghettoes of France.

The US car industry will be treated the same way they treated European car industry years ago.

So?

By Lassi Hippeläinen (not verified) on 16 Nov 2008 #permalink

This is just a Band-Aid? I can't believe you don't grasp that the auto industry is fundamentally dependant upon Band-Aids! ;)

Haha. I suppose it's only fair -- plenty of Canadian politicians and pundits drag out "American-style" as an all-purpose epithet to bash their opponents whenever they have the opportunity. Funny to see the shoe on the other foot.

By Matt McIntosh (not verified) on 17 Nov 2008 #permalink

Toto - The French tried to soften the blow as much as possible. Thatcherite Britain just axed the entire industry. It's not difficult to see the difference in outcomes. White working-class neighbourhoods in the UK are now strikingly similar to the immigrant ghettoes of France.

That's one way to look at it - except that I don't know anything about working class UK in comparison to immigrant ghettoes of France.

On the other hand, pre-Thatcherite Britain had a per-capita GDP that was 59% of France's, while today it is 105% of France's. Granted, it will be interesting to see what changes the next couple of years brings.

What specifically did France do to soften the blow to hard-hit industries?

Given what I can gather from news reports, I'd have to say that politicians backing a bailout of the automotive industry actually appear to realize that such action is unlikely to save that industry. The goal of the bailout seems to be short term avoidance of a full-blown economic recession. This is a desperate measure for desperate times: a band-aid that would not necessarily be applied to a declining industry in a healthy economy.

By ancientTechie (not verified) on 17 Nov 2008 #permalink

The goal of the bailout seems to be short term avoidance of a full-blown economic recession. This is a desperate measure for desperate times: a band-aid that would not necessarily be applied to a declining industry in a healthy economy.

as is obvious from my posts, my main issue with this is that fixating on the auto industry as the place where the gov. injects cash isn't fair to other parts of the country. florida for example has been on fire because of the real estate collapse for several years. california is verging on the same.