If automakers fail, here's a flavor of what might happen

McClatchy NewspapersDecember 12, 2008 

WASHINGTON — At Nelle Belle's Diner in Claycomo, Mo., north of Kansas City, there's already been a glimpse of what a downturn in the auto industry can do to business.

When the nearby Ford plant, which produces the F-150 pickup, offered buyouts and retirement packages a year ago, the 39-seat diner saw fewer autoworkers — once their primary customer base — coming in to eat breakfast and lunch or taking food to go. Business still hasn't completely bounced back.

"A lot of them who are not sure of their job, they're in here just once a day now," says Hedi Orr, who's worked at the diner for five years. "We (worry), they do, everybody does.

"Look at how many jobs are affected by it. And it's not just the Ford workers, a lot of industry depends on them. The Allied drivers, their jobs depend on Ford. The company that makes the seats for the cars, their jobs depend on it. Tons of places."

With the Senate's refusal to approve a loan package to keep auto companies afloat, the potential economic impact of bankruptcy or failure of any or all of the Big Three is worrying typical Americans and industry analysts alike.

The 239,000 jobs at General Motors Ford and Chrysler are just a fraction of what's at stake.

If there were just a 50 percent contraction in the auto industry, nearly 2.5 million jobs would be lost in the first year, resulting in $125 billion less in personal income before a partial rebound in later years, according to the Center for Automotive Research in Ann Arbor, Mich. State and federal coffers would lose $50 billion from lost tax dollars, the center said.

"We believe the economy is in such a weakened state right now that adding another possible loss of one million jobs is just something our economy cannot sustain at the moment," White House spokeswoman Dana Perino said Thursday.

Experts say it's not just the obvious — car companies, suppliers and dealers — who'll be affected. Failure of these companies could affect national security, television studios and even sports teams.

"If you knock out these suppliers who are also providing powertrains and axles to the military, what are you supposed to do then?" former Energy Secretary Spencer Abraham said Friday in a phone interview.

Abraham, a former Republican senator from Michigan, said billions of dollars in pensions and health care would have to be picked up by taxpayers if the auto companies can't live up to their commitments.

"If you see the auto credit system come unglued, then you see another jolt to the (financial sector)," he added.

Abraham said he was reminded of the far-flung tentacles of the auto industry when he read that talk show host Jay Leno was given a 10 p.m. program in part because his show would be cheaper to produce — television networks are suffering from fewer car commercials.

Nascar is another enterprise that relies closely on the auto industry for financial stability. Not only do the Big Three provide most of its cars — they also sponsor teams and race tracks.

The companies have already started scaling back on marketing and promotions, and Chevrolet failed to renew some of its track relationships, said Nascar spokesman Andrew Giangola.

Due to the economic downturn, the sport is already expecting a 3 percent to 5 percent cutback in jobs among racing teams, some of which employ more than 100 workers per car, he said.

The electronics industry also would suffer, with about 20 percent of the value of vehicles tied up in high-technology features, said David Cole, chairman of the automotive research center. Most decision makers don't understand how intricately woven the automotive supply chain is, he said.

"One single (supplier) company could take out the entire industry, both domestic and international," Cole said.

Some economists think there's no way to save the auto companies with a government loan, and they're better off entering bankruptcy and finding a way to climb out.

"By assisting the Detroit Three, Congress can delay one or all of them going through Chapter 11 reorganization, but sooner or later one or all will face reorganization," Peter Morici, a University of Maryland economist, testified at a House of Representatives hearing. "The communities and suppliers dependent on these companies would be better off going through that process now than by delaying it with assistance from the federal government."

The Republican senators who opposed congressional approval of the loan package predicted the money would never be paid back.

Sen. Richard Burr, R-N.C., who supported the bank bailout but not the auto package, said the two are different circumstances.

"Without a financial market, we really don't have the economy," Burr said.

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McClatchy Newspapers 2008

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