The Big Three: Jobs still at stake in Middle America

By: Scott Conover

Posted: 11/21/08

It is arguable that companies should be permitted to fail. In domestic free market economies, this is fate of inefficient, ineffective or unlucky companies. However, this is not always the case, especially in hard times. Employment in a recession is difficult to sustain, and any serious damage to sector employment can lead to decreased consumer spending, financial panic and of course, worse times for those who lose their jobs. The Big Three are no different in this case than any other. While perhaps in a perfectly capitalist world they would fail, dare we risk the loss of jobs over Christmas time?

One of the primary reasons that the Big Three are weak is due to the fact that they possess poor labor productivity as compared to their competitors, such as Japanese automakers Toyota, Nissan and Honda. According to CBC news, "The 2005 Harbour Report estimated that Toyota's lead in labour productivity amounted to a cost advantage of $350 U.S. to $500 U.S. per vehicle over North American manufacturers." This may be due to the fact that American companies have union workers, which increases costs, providing family-wage jobs to numerous Americans, but also makes it difficult to compete in an international market.

Employment is a serious stake in any economy, and the U.S. auto industry employs thousands of people. Zenobank.com, as of 2008, Ford Motor Company (F) employs 87,700 people. Yahoo! Finance also shows General Motors (GM) as employing 266,000 people. Chrysler employed 132,130 people as of 2006; those numbers may have declined to as low as 15,000 after the latest November cuts. This provides an approximate total of 368,700 full-time employees.

Generally speaking, given the nature of these jobs in America, it is likely that there are several other persons who are employed in secondary and tertiary support industries surrounding the Big Three. For example, although car manufacturing is important in America, comprising some portion of the commercial and service industry manufacturing, it is affected by and affects other industries due to domestic demand for materials, supplies and transportation, as well as other factors which exist within the process of procurement and logistics.

For instance, according to the U.S. Bureau of Labor Statistics, 9.2 percent of all employment was in the commercial and service manufacturing industry. However, the metalworking machinery manufacturing industry employs 16.8 percent of the U.S. workforce. The metalworking machinery manufacturing industry, according to bls.gov, "makes machinery that forms metal in its molten state and that cuts or shapes metal as a solid." How does this industry influence car manufacturers? Does metal-shaping equipment come into play for auto manufacturing? U.S. auto manufacturers are likely supplied by other companies in the metalworking machinery manufacturing industry, thus fulfilling demand and thereby employing people in support roles.

When a main industry is affected in a major way, other support roles can be damaged or even eliminated. Assuming that these support roles are connected in conjunction with the U.S. auto industry, it is possible that many jobs, which previously supported American auto manufacturers, could be eliminated. Assuming a simple rule of thumb of 10 support roles per worker, this could equate to more than three million support jobs being eliminated.

According www.detnews.com, the Department of Energy was willing to provide 25 billion dollars to the Big Three and their suppliers in the form of low-interest loans. The Wall Street Journal reported on Aug. 21 that Barack Obama recently signaled that he's open to federal money to help the auto makers invest in renewable technology, and Michigan Senator Debbie Stabenow and Mr. Dingell are supporting the $25 billion in loans to the not-so-Big Three as part of a second-round economic "stimulus."

However, on Thursday The Associated Press reported that U.S. Congress has suspended the talks until they receive a business plan from the Big Three. The White house has already signaled that they will sign off on a 25 billion dollar loan to the Big Three from the Department of Energy to produce more efficient vehicles. No matter how it works, it is a loan to the Big Three to get themselves in order. In order to prevent layoffs around Christmas, something must be done to prevent the complete breakdown of these American companies. The loan is the current solution, the temporary balance stricken to carry the Big Three through the winter and into the coming spring.

Although Nancy Pelosi and Harry Reid may disagree with the current president as to how to do it, the fact is that come Jan. 20, there will be a new president of the United States, and there will be different opportunities available.

However, that is months away. The current president has the authority, and trying to hedge past it is a colossal waste of time. These are supposed to be the politics of bipartisanship, the politics of change. There will be a new president soon enough, but time for aid is now. The auto manufacturers do not have the luxuries of Congress - they cannot outwait the status quo. The time for change is now. An important industry of the United States stands in peril, with thousands, if not millions of jobs at stake.

If U.S. auto manufacturers fail, cars will still be sold in the United States by overseas companies. This will cause other companies to take market share and flourish, even as U.S. companies fail. Thousands may lose their jobs, as may those whose jobs depend on the Big Three and their business. Purchases may flounder in Michigan and elsewhere, and an entire sector of the U.S. economy may spiral downward, possibly signaling an end to the American automotive industry. Arguments waste time - and the time to act is now.

With regard to the U.S. automobile industry, it may cost us dearly to so stringently hold to our laissez-faire stance. Are we willing to take the cut in employment? Are we willing to pay the price?

Scott Conover is a senior in business administration and history. The opinions expressed in his column do not necessarily represent those of the daily Barometer staff. Conover can be reached at forum@dailybarometer.cm.