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Auto Bailout - My Thoughts

This was something that I put together a month ago but due to family time holidays work and other things I wasnt able to finish. I have finally updated the site (one of the other reasons) this weekend and can get back to adding photos stories news and other content. Enjoy my ramblings.

Last week the Senate voted against the U.S. automaker $14 billion bailout and putting another nail in the pending coffin for Detroit s Big Three and millions of jobs. After the House had just passed the plan late on Wednesday with a vote of 237-170 the Senate came back and rejected the plan to the tune of 52-35. The 52 votes left the Senate 8 short of reaching the 60 votes required.

Without saying it was a Democrat Republican North South Midwest East West or any other group - it was simply a failure to assist the Big Three and save jobs. There was a study done in 2003 (page 34) that states that we believe new vehicle production sales and other jobs related to the use of automobiles are responsible for 1 out of every 10 jobs in the U.S economy. While a more recent study by the same group states these numbers Should all of the Detroit Three s U.S. operations cease in 2009 the first year total employment impact would be a loss of nearly 3.0 million jobs in the U.S. economy . The CAR Group does give projections about those 3 million workers and what happens to them - The employment picture recovers somewhat in 2010 (2.5 million jobs lost) and 2011 (1.8 million jobs lost) due to increased U.S. production by the international automakers and the process of dislocated workers finding new employment.

The problem I have with those predictions and the idea of doing nothing is how hard areas will be hit. In communities all over people are on the brink of losing their homes as it is. Towns where a GM plant closes will not only lose the workers at the plant but all of the places that those workers spent their money. The talk I have heard has all been around the factory workers but what about those that sell cars repairs and others that support the industry?

In 2006 the average car dealership had 53 people on payroll and an annual payroll of $2.5 million. This means that there were 230700 new and used vehicle salespeople 339100 service and parts workers 2547000 technicians and Supervisors 295700 general office workers and others. These payrolls equal $52.9 billion which in 2006 was almost 14% of the nation s total retail trade payroll. (Data from 2007 NADA Stats of Employment Payroll) Just this past October there were some 20 000 auto dealer employees that lost their jobs according to the U.S. Labor Department. The communities that served these people with gas food clothing nights out to the movies trips to the ball game will no longer have them spending money in the community. With all these people losing jobs and possibly their houses - what will happen to them and their community?

So lets take a look at some of these small communities.

Connecticut

Connecticut has been hit already and it will only get worse for the small state should the Big Three go under. In a total collapse of the Big 3 Connecticut s job losses - including direct and indirect jobs such as building maintenance - would total about 31 200 or 2 percent of the state s employment according to a Dec. 3 estimate by the Economic Policy Institute says a Dec. 3 estimate by the Economic Policy Institute in Washington D.C. In the state there are 300 new-car dealers and more than half of them are currently from the Big Three. Those indirect jobs that the Economic Policy Institute spoke of are estimated in the 25 000 job range and make up 1.5% of all jobs in the state of Connecticut. Does Connecticut know it is about to lose 25 to 30000 jobs and the tax money that goes along with it? What about the costs of finding all of those people jobs? The short and long term costs of welfare healthcare and possible foreclosures?

Minnesota

Another small community that relies on auto industry jobs is Minnesota. Economist Robert Scott predicts that the state could lose between 14000 and 52000 jobs if the Big Three go bankrupt which again is 1.5 to 2% of the total employment in the state. On Friday the Minnesota Auto Dealers Association held their annual meeting and they also happen to be the group that may feel the biggest hit from the fall out. The group has more than 400 auto dealers with 60-70% of them selling domestic brands. If you do some quick math (65% is 260 dealers 53 is average number of employees) you will quickly see that almost 14000 jobs could be lost. This number lines up quickly with the low end of Mr. Scott s estimates for the state. For more on Minnesota continue reading here.

Hawaii

David Rolf of the Hawaii Automobile Dealers Association said it best when he said The auto industry is so fundamental to the employment base and it s really about jobs jobs jobs Like many small communities Hawaii relies on the jobs and income created from the auto industry. A local Ford dealership that has done business for 40 years has gone from 100 employees a year ago to having just 40 on staff now. Rolf predicts that a bankruptcy to the Big Three would have a devastating affect nationwide including in Hawaii.

Texas

Automobile dealerships in larger cities such as Dallas-Fort Worth are facing their own challenges. The Big Three last week testified that in metropolitan areas there was a surplus of dealerships and that they had contributed to their current financial problems. GM is looking to cut 35% of its dealers by 2012 and Chrysler s chief executive admits that they are overdealered . We are going to see major consolidations generally in the metropolitan markets said David E. Cole chairman of the Center for Automotive Research. They really don t have enough volume per dealer to justify the number of dealers they have.

With the recent sales slump I imagine that the automakers had just hoped that dealers would go out of business and solve the problem for them. The credit crunch and worse than expected sales have lead them to where they are now and with a sense of urgency. The auto dealers in Tarrant County appear to have accepted the fact that there will be consolidation or some sort of slimming of the number of dealerships. I m sure that the dealers have seen this coming as sales numbers for North Texas this past October were down 15% with nationwide sales dropping 32%. If numbers continue that direction there will be no way for all of the dealerships or possibly any of them to stay open in Texas or anywhere.

Why? Why Not?

In all - I m against bail outs but think that if they can give $700 billion to the banks why can t they lend some to the automakers? How many times have the airlines been bailed out now? Below are two quotes from Dutch Mandel at AutoWeek that I had to quote:

Why should I be angry that for $14 billion--or the cost of a month and a half of what we spend in Iraq on a war whose Mission has been Accomplished for more than five years--the economy is getting dragged further into a pit of misery?

Why should I be angry that people do not understand that it s not just a car company that goes bankrupt but also suppliers car dealers and all of the support businesses that suffer around the country?

Some other reading for you:

Meet the GOP s wrecking crew S.C. politicians favor BMW over bailout of Detroit