Loss of Automaker Jobs?

The "number of auto industry jobs lost without bailout" has now grown to THREE MILLION according to cable news stations.

 

Where is this number coming from? There aren’t 3 million auto workers in this country and not all parts manufacturers and parts stores would go out of business with GM.  This number seems grossly exaggerated.

We find two sources for the 3 million figure, one with ties to the auto industry and the other with ties to labor unions. Both are based on dubious assumptions.

 

To start, the "Big Three" U.S. automakers (General Motors, Ford and Chrysler) directly employed 239,341 persons in the U.S. at the end of last year, according to the Michigan-based Center for Automotive Research. The Big Three’s suppliers employed an additional 732,800. Those jobs add to less than 1 million.

Jobs also are at risk at GM, Chrysler and Ford dealerships around the country, and at such places as the newspapers and TV stations where they advertise and the stores where auto industry employees shop. But how many depends on a fair amount of guesswork about which firms would fail and what the ripple effects would actually turn out to be, both inside and outside the auto industry.

Getting to 3 million requires us to assume that all of the Big Three fail, that all their suppliers fail as well, and a lot else besides – including an assumption that Toyota, Honda and other foreign manufacturers also shut down all their U.S. production. Some independent economists say these extreme assumptions are improbable.

• "People will still drive cars. Toyota would expand US assemblies, not cut back," says David Wyss, chief economist for Standard & Poor’s. Wyss said in an e-mail exchange with FactCheck.org that he believes a "realistic" number of job losses would be about 500,000, "and I think that may be high." He bases that on a prediction that GM and Chrysler shut down, while the financially stronger Ford Motor Co. would stay in production.
• Economist Mark Zandi, who testified in favor of government assistance to the companies before the U.S. Senate Banking Committee on Dec. 4, has also stayed away from the 3 million figure. He said at the hearing that 2.5 million jobs would be "at risk" but that the number who might actually be laid off would number in the "hundreds of thousands." In a later interview with Bloomberg TV he said that the impact of a Big Three bankruptcy would be "hundreds of thousands, maybe even a million" jobs.

The 3 million figure appeared first in a study by the Center for Automotive Research, an industry-supported group, which estimated on Nov. 4 that 2,951,344 jobs would be lost in 2009 if all three U.S. automakers shut down production entirely. CAR based this on an assumption that all of the Big Three’s suppliers would be forced to shut down production, and that this in turn would force Toyota and all other foreign suppliers to shut down their own U.S. production lines.

Center for Automotive Research, Nov. 4: [W]e assume in our 100 percent contraction scenario that not only does domestic production by the Detroit companies fall to zero in the first year, but that domestic production (in the U.S.) by the international producers also falls to zero. That is because we expect a major wave in supplier bankruptcies or a “supplier shock.”

More than half the jobs that CAR says would be lost – 1,738,034, to be precise – are "spin-off" jobs in the general economy from "the loss of economic activity due to reduced spending of employees of the Detroit Three and their suppliers in the U.S. economy."

CAR said it produced the study on its own, and that it was "not commissioned by any third party organization or company." But it is also true that CAR’s Economics and Business Group lists among its "major sponsors" the Alliance of Automobile Manufacturers (which includes GM, Chrysler and Ford) and the state of Michigan.

The second source for the 3 million figure is the liberal Economic Policy Institute, which has a tie to the United Auto Workers. A paper that EPI released Dec. 3 projects a loss of "up to" 3.3 million jobs, but this is based on some of the same assumptions as the CAR study. It assumes that all domestic auto production would cease, including all U.S. assembly plants of foreign-owned producers including Toyota and Honda. And most of the jobs that this study says would be lost are actually outside the auto industry:

Economic Policy Institute: Jobs in the auto industry are some of the best paid in the economy, and when workers spend those wages they generate (on average) about 1.7 additional jobs for each job supported in the auto and related sectors. … These jobs would constitute the bulk of the jobs displaced by an auto industry bankruptcy.

EPI is a liberal think tank that bills itself as the nation’s leading research group "to focus on the economic condition of low- and middle-income Americans and their families." Its board of directors includes nine labor union executives including Ron Gettelfinger, president of the United Auto Workers, a strong advocate of federal aid for the industry.

We of course take no position on whether taxpayers should aid the Big Three, and we have no ability to predict the future. We can say as a matter of fact, however, that the assumptions behind the 3 million figure are dubious at best.

For one thing, Ford has said it does not even need federal aid for now and can continue operations indefinitely without it, based on its current projections. Ford’s chief executive, Alan R. Mulally, told the Senate Banking Committee on Dec. 4:

Ford CEO Mulally, Dec. 4: In the near-term, Ford does not require access to a government bridge loan. … Based on current business planning assumptions … Ford expects both our overall and our North American automotive business pre-tax results to be break-even or profitable in 2011.

A collapse of Chrysler and General Motors is more likely and would indeed be a severe blow to the economy in general and a calamity for each of the hundreds of thousands of workers sure to be directly affected. But considering both its sources and the assumptions required to produce it, we judge the 3 million figure to be an exaggeration.

-Brooks Jackson