Ford/GM failure will massively effect the country?

[TwixVoy]

I keep hearing on the news that if Ford/GM goes under it will massively effect the nations economy - not just the parts directly related to cars.

Can anyone explain how this would happen? Is it a domino effect? What is the worst case scenario if Ford/GM go under?

[Idealism]

1. Probably

- over 10% unemployment, which means much less tax revenue for the next few years, creating more of a budget deficit
- much less consumer spending which will only further this recession into another possible depressing
-also worsen our trade defecit
-another possible 2 million homes in foreclosure is entirely possible just from laid off auto workers

This is just my best educated guess

[sandnsea]

2. How many Ford/GM Dealerships in your area? n/t

[TwixVoy]

3. Of course those will go out

but I am asking the details of how it will effect parts of the economy NOT related to cars.

[sandnsea]

10. How does any industry affect the economy?

Recplace cars with any other industry. Clothes. Shoes. Food. Electronics.

I think the answer is obvious.

[depakid]

29. Actually, the answer is subtle and has to do with multiplier effects

Every person who loses a job not only has less disposable income to spend on goods and services in local communities, but may well also be drawing on government benefits (as opposed to adding revenues to the stream) -and may well also be selling off various assets (whether equity interests in responsible companies that will continue to make profits and provide sustainable dividends- or family hierlooms- which in economic terms have similar utility) selling well below any reasonable valuation just to stay afloat or meet current obligations. That sort of deal, make us all- evrywhere in the world- that much poorer.

In these sorts of respects, individuals and families mirror in some ways what's happening with redemptions in mutual funds- or even hedge funds. They have to dump fine assets, things they wanted their kids (so to speak) to have- along with whatever else- to try to say afloat.

Without intervention- systems at times end up in self reinforcing cycles of feedback loops where individuals, neighborhoods, communites and businesses, larger corporations, governmental entities- and even larger international concerns all end up, so to speak, going down with the ship.

Seems to me that we can both damn well dislike, disagree with or even hate the kinds of people and processes that got us to this point and yet still understand that it's necessary to stem the tide, and get behind responsible and intelligent policy makers all around the world together- not just in Oregon or Australia or in Britain or China or the EU- the lot of us.

Whether one warned against troubles beforehand is mostly irrelevant now- except perhaps as to credibility.

One can remember the Battle in Seattle, yet move forward, rememberinf rather than dwelling too much on the past.

It's 2008, not 1999.

[sandnsea]

32. You think that's subtle?

I think that's common sense.

[depakid]

38. It's not (or shouldn't still be) on the Central/South Coast

but is it in other places- and among people that have this far felt as if they're immune.

[Octafish]

39. Making cars pays $39.68 an hour.

Making burgers pays $6.55.

Big diff, my Friend.

[sandnsea]

41. Uh, duh

I don't get your point. It should be obvious to anybody what the loss of the car industry, and those good jobs, would do to this country. I don't see what burgers has to do with it, except the obvious, that those jobs aren't as good as the ones they're replacing.

[susanna]

24. Because in whatever state YOU live...

...there are very likely automotive company plants OR automotive company suppliers situated within your borders. It's the nature of a logistics beast. If all of them go down, the local economies go down alongside...yadda yadda yadda.

I'm not sure why this is difficult to understand.

on edit: clarity

[Winterblues]

43. There was a saying for years in America

"As GM goes, so goes America"

[cliffordu]

5. The only new car dealership in my town - a Ford dealership - closed down 2 months ago.

[sandnsea]

7. Ours too, the Chevy is almost gone

The lot is about 1/4 of what it used to be. The only thing holding our local economy together is the fact that it's based on retirees and their health care.

[tammywammy]

23. 1 in 5 dealerships are expected to close

I work at a dealership, so far we're making it and haven't had any layoffs. But I know of a lot of layoffs at other dealerships around.

[winga222]

4. Something like 1 in 12 US jobs tied to the US auto industry

Would be pretty dire and we'll probably need to prop them up, though I'm no fan of how they've been led over the last 10 years or so (Hummer anyone?)

[ContinentalOp]

6. What is the truth behind this statistic?

I have read again and again that 1 in 10 jobs in the US are related to the auto industry. But obviously that includes people like the workers at Toyota plants in the US and salespeople at foreign car dealerships. Does it include the auto insurance industry? Maintenance? Is every auto mechanic part of that "1 in 10"? How many people do the big 3 actually employ directly?

[ContinentalOp]

13. I found the answer to my own question:

"The Detroit Three employ more than 200,000 people directly, and sustain nearly 3 million more indirectly, according to the CAR study"
http://online.wsj.com/article/SB122608860916209213.html

So loss of the jobs of people directly employed by the big 3 would increase the unemployment rate by something like 3%? But the loss of that additional number of indirect employees would increase unemployment by something like 40%?

[Blue Diadem]

15. Recently I read that a plant that was set to close in Ohio had 10 suppliers.

Each one of those suppliers have suppliers too.

As an example, I worked at a place that made a type of O-ring for Dana who in turn sold them in universal joints to someone else. We bought our plastic to make them from a two different suppliers, one recycled and one virgin material. I'm betting they had someone supply them as well.

[ContinentalOp]

17. Yeah, the more I think about it, those direct Big 3 employees are a drop in the bucket...

but you start to think about companies who subcontract janitorial services to Big 3 factories or dealerships, privately owned trucking companies that transport the vehicles, advertising firms, insurance companies that insure the actual factories and dealerships... you can easily see how the combined effect would be massive.

[Blue Diadem]

21. Yep. I've seen what can happen when one factory closes.

I can't imagine the Big 3 going, it would throw us into worse than the great depression.

[susanna]

25. This is something so many are still struggling to "get."

And it is scary to me. The Big 3 are the last bastion of BIG manufacturing in this country, save airplanes. (I must note that airplanes are built to order, so they do not run thousands of vehicles through their assembly lines every day, and so are not necessarily germane to this particular topic.)

The Big 3 are some of the most logistically advanced in modern times. The dependencies in the automotive assembly process are so far reaching, it's really impossible to calculate. Except to say, if the Big 3 go down, a huge number of small manufacturing facilities in non-industrial states all over the US go down too. Along with all the service companies (janitorial, food service, etc.) that supply them.

My two cents. Fair disclosure: I am a former logistics analyst for the auto industry, so I do have some background on this topic.

on edit: typo

[kysrsoze]

20. I read a recent article in Newsweek. A lot of parts suppliers can't survive without the Big Three..

or at least without 2 of the 3 (assuming GM is somehow able to get the cash to buy Chrysler). And those same suppliers also supply Honda, Toyota, Nissan, etc. in the U.S. So if they go under, we have no suppliers for the "imports" either, thus creating the domino effect.

I wasn't all that keen on bailing out the U.S. automakers, but I think this country is hosed long-term if we don't do something. The thing I worry about is whether they will learn to actually do something different than jack up production of large SUV's and ignore alternative power as soon as gas prices go down again. Of course, I still feel much more comfortable bailing them out if we can ensure they take the right track, than giving money to all the sh*tbrains at AIG and the other organizations who gambled our housing market away.

[ContinentalOp]

26. Yep, I agree. I have never owned an American car, and as much as I hate the SUV craze...

and the idiotic management of the big 3, I do have a soft spot in my heart for the golden age of American cars and a respect and nostalgia for the US auto industry. If we're going to bail out a bunch of useless Patrick Bateman type tools on Wall Street, we might as well save the auto industry as well.

[tammywammy]

18. 1 in 10 jobs are related to the car industry

You have the aftermarket area, that would be effected. As well as the business that supply things like forms and such for dealerships. Oh and there's that whole industry that manages computer programs that dealerships use. Then you have the regular salesmen, techs, office workers, etc. You have people at the actual plants putting cars together. You have people in the parts distribution centers. You have the people that make and ship parts. There are the truckers that drive the parts from distribution centers to dealerships or plants or they even transport the vehicles. You have the people that work at the ports that prepare vehicles to be shipped. You have all the small independent shops and those techs. You have people that work in banks that do the floorplanning and floorplan checks. You have the people that work for banks that just approve/not approve car loans. It goes on and on.

[Blue Diadem]

8. Here are some:

The suppliers and the suppliers of the suppliers.

The drivers who transport the parts

The local small shops that are around the factories, like bars, carryouts, fast food joints, even bowling allies.

Then the fact that so many are unemployed and won't be able to spend which will further cut sales in stores, restaurants, movies, etc.

Then the towns and states are affected by not getting the income and sales taxes they'd normally get which in turn will affect their budgets.

edited to add: Our town is losing a factory in the next year. Our town is already gearing up by asking for additional taxes. The local store which serves lunch for the crowd will lose all that business, the local restaurants, carryout and gas station will lose business too.

[stevedeshazer]

Spot on

The effect is cumulative.

All these people matter. Auto manufacturers create large economies, including many service jobs.

A dollar spent in a local community gets passed around. In a global economy, that same dollar gets shipped overseas.

[Bobbie Jo]

28. Add to the list.... the plastics industry will take a huge hit. nt

[Lumpsum]

9. Obama pretty much demanded Bush save Ford/GM before he takes office. nt

[Joe the Liberal]

11. I would assume that it would affect the nations economy....

When people don't have jobs they don't spend as much money, don't pay taxes and most likely cant pay the mortgages on their homes. So in that respect yes its does affect the nations economy.

[cherokeeprogressive]

12. Those two companies employ HUNDREDS OF THOUSANDS of people.

Not everyone who works for GM works on the assembly line. Do you understand that? It is a domino effect of the worst proportions.

If the auto makers go under, what will happen to workers who worked for them during their glory years? Fuck their retirement, right?

Big Picture. You're missing it.

[The Traveler]

16. You are not even counting parts manufacturing

materials, services, etc. And then there are secondary effects ... the grocers, retailers, service providers, etc. who will lose business because a huge percentage of their clientele just got unemployed.

You are so right. This is huge and the ripple effects incalculable.

[TwixVoy]

30. Yea fuck their retirement

Never said that jack ass. Was trying to understand how massive the effect would be. Nothing more.

[kwassa]

14. "affect" not "effect"

signed, anonymous grammar nazi.

[Aqaba]

19. Advertisers too... ever watch NFL on Sunday?

Its 1.5 hours of GM/Ford commercials and 1.5 hours of football. Not to mention the newspapers.

[galileoreloaded]

22. 2 million unemployed, PBGC goes poof. Yeah, the worst possible scenario.

And at this point, pretty inevitable. I keep saying it, but nobody listens. The US is BK, insolvent. GM has a negative $60 billion book value, meaning we would have to prop them up for 15 years. Think Fannie, but billions down a rat hole every month. This is the point of inflection for the US. We have screwed our kids and wasted our country, and there is no political solution, unfortunately. We are at a point where every dollar we borrow has no effect on GDP. Zero. We are borrowing one one credit card to pay off another, and someday real soon, our card will get declined. AMEX today is a great example of the great robbery, and we just sit here and type, me included.

If your in the markets, go long cat food.

Mom's gotta eat.

[TwixVoy]

31. So you are saying

there is no way to stop them from going under?

[Oldtimeralso]

27. This can happen

yet we bail out the money shufflers that made millions for themselves and billions for their companies that invented investment scams in the period of almost no regulation. When the house of cards they built crashed the government sent hundreds of billions that are not being accounted for to banks and investment firms. The auto industry sells what people want, and when consumer demand changes the time to respond in great. The technology is in it infancy for electric,and electric -hybrid cars. GM is soon to produce the Chevrolet Volt, an electric-hybrid car, but I'm sure that production will be limited. AIG has received $ 140 billion in government funds and how many employees do they have that hit the streets. This government bails out the elite but not the working class ie bankers and brokers vs autoworkers. This is just another example of the hate for the middle class and as the auto industry is very unionized ot another example of the governments war on organized labor.

[summer borealis]

36. Correct

They bail out the shufflers of paper, yet the makers of hard, saleable goods are left to perish. Preposterous.

[TexasObserver]

33. Yes, such failures would massively affect the country. The effect will be highly negative.

[JCMach1]

35. So Much so that IF they go under, the Dems will be tossed-out

in a heartbeat...

[Lumpsum]

34. Obama told Bush yesterday that some of the 700 billion bailout needs to go to automakers.

Bush was reluctant, and tried to make a deal. He said if Obama helps him pass a FTA with Colombia, he'll give some money to the automakers.

http://www.huffingtonpost.com/2008/11/10/bush-open-to-stimulus-pac_n_142866.html

How sickening is this? The fate of the country could rest on whether or not these two automaker giants go under, and Bush is trying to cut deals before he gives them money.

UGH.

[SammyWinstonJack]

42. So the poo flinging chimp wants more jobs to leave the country?

Heckuvajob george. :argh:

[End Of The Road]

37. The domino effect & "not just the parts directly related to cars"

Think about this --

Cities compete for big manufacturing to move to their area. They give them tax breaks and all sorts of deals. It's not just because that plant will employ x-number of people, but because it creates other, unrelated jobs for alot of people. More restaurants, more dry cleaners, more barbers, more private & public construction, even more of those effing nail salons. I read some statistics on this years ago... wish I could remember them for you. Sorry.

So when you think about this in reverse, you get a picture of how drastic the domino effect can be. If auto mfg fails, then the smaller companies all over the U.S. that supply the industry, then local car dealers, it can effect service industries like those mentioned above all over the country.

And think what pressure it puts on state and federal unemployment benefits -- how long could they afford to pay?

[melm00se]

40. Ford and GM

directly employ more than 500,000 employees and, indirectly, an untold # of employees (at least 10x - a guess?) at suppliers of everything from sheet metal to screws to fabrics to electronics to tires to to to to.

Unless there is some dramatic change in their fortunes, quite a bit is at risk.

As I see it, a holistic approach would be needed:

Executives
Entry, mid and upper management
Workers

All will be required to give back/give up a lot of things they take for granted.

Line workers putting a nut on a bolt (and yes I know that is simplistic) who are making the equivalent of $100/hour (salary, benefits etc) make as little sense as executives pulling down multi-million dollar bonuses and compensation packages.

The entire management and labor arrangement needs to be re-examined and, more than likely, torn down damn near to the basement and re-assembled to a long term and more sustainable model - people should be compensated for the real skills and value that they bring to the mix - not their ability to negotiate an unreasonable level of compensation.

Once those directly controllable costs are addressed, then the real work can begin of re-evaluating investments into the business - like (as the biggest example) pouring huge amounts of any profits into R&D and out hustling the competition with new technology rather than the number of cup holders in a vehicle that is 2 generations back technology-wise.