Numbers and the auto industry

If Detroit Falls, Foreign Makers Could Be Buffer:

"You would have an auto industry in the United States more like that of Mexico and Canada: foreign-owned," said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich., which describes itself as a nonprofit organization that has "strong relationships with industry, government agencies, universities, research institutes, labor organizations" and other groups with an interest in the auto business.

Like Canada! Now that's scary. Here are some interesting numbers from the piece:

The transition to that new equilibrium would surely be painful. The big American companies employ about 240,000 workers, and their suppliers an additional 2.3 million, amounting to nearly 2 percent of the nation's work force.

The outright failure of General Motors would eliminate the biggest auto employer and more than 100,000 manufacturing jobs. That is roughly the number of jobs already lost this year at the nation's automakers and their suppliers.

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Even in this year of plunging car sales, the automakers and their vast supplier network still account for 2.3 percent of the nation's economic output, down from 3.1 percent in 2006 and as much as 5 percent in the 1990s, according to government data. More significant, economists say, 20 percent of the shrinking manufacturing sector is still tied to the automobile industry.

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The American automakers, of course, have bought more and more parts from overseas. But 85 percent of their products are made in North America, compared with 60 percent for the foreign-owned automakers, said Dan Luria, research director at the Michigan Manufacturing Technology Center.

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But if the current downturn is prolonged, it might be too late. In an industry capable of making 17 million cars a year, sales have dropped to an annual rate of only 10 million vehicles made here.

"None of the Big Three -- and perhaps not the transplants -- can make money at 10 million," Mr. Luria said. "The transplants are O.K. at 12 million and the Big Three at 15 million or so."

Annual sales of autos and light trucks have been at least 15 million through most of the last decade.

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The elimination of many more workers, most of them union members and earning upwards of $20 an hour, would be devastating in Michigan, Ohio and Indiana, where the American automakers and many of their suppliers are concentrated. In fact, many of those jobs may disappear even if the companies win government assistance.

But other employers would take their place over time. As the foreign companies stepped up production to replace what would be lost by an American company's collapse, the transplants would add to their existing work force of 78,000, replacing many of the lost jobs, although at lower wages, with fewer benefits and at nonunion factories in other parts of the country.

It's great for UAW members that they can get jobs which pay well with benefits, or at least if they have them. But that's not the lot of most Americans without a college degree; since 1970 only for a short period during the late 1990s did the non-college educated sector of the population realize real gains in income. A major background condition which obviously looms over this article is that unionized American auto-markers are always going to be saddled with higher fixed costs in terms of labor input. Unless we nationalize the auto-industry we'll almost certainly face the same problems when the next recession shows up and the threshold of demand for high-margin vehicles craters. Detroit can generate more revenue per unit of goods than foreign auto-markers, but that's irrelevant when you take into into the higher cost per unit because of pensioners, etc.

If you assert that there's a structural problem with the American economy and how it rewards the non-college educated, this is just a band-aid. UAW members look to have relatively good labor contracts because most Americans with their skill level and education are being marginalized. This is a big issue, and one which society needs to address. A bailout will distract from that, and it is fundamentally not fair to all those who work for companies who aren't going to be backed by the full faith and credit of the American government. In other words, the taxpayer.