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The failure of one or more of Detroit’s Big Three automakers would put a huge initial dent in American manufacturing, but in time foreign car companies would pick up the slack by stepping up production in their plants here, many industry experts and economists say.
Whether Washington should let that play out — risking hundreds of thousands of jobs — is a central question Congress will weigh this week as it hears testimony from Detroit leaders who are pushing for immediate federal intervention, before the next administration takes over in January.
“Barack Obama has made it clear he understands the importance of the industry. The question is, do we get that far?” Ron Gettelfinger, head of the United Auto Workers, said in an interview Friday, raising the prospect of a General Motors bankruptcy. “At this juncture, we are in a crisis that could have a major negative impact on this country.”
But many industry experts say the big foreign makers are established enough to take control of the industry and its vast supplier network more quickly than is widely understood.
“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.
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.
G.M. is rapidly running out of cash and appealing to Washington for a multibillion-dollar bailout to keep operating and continue the costly conversion to a leaner company producing efficient vehicles that people will buy.
G.M.’s collapse would probably bring down some of its suppliers as well. Since many of them ship parts and subassemblies to the other auto makers — domestic and foreign — auto production could be crippled until the supply system was reorganized around the newly dominant foreign car makers.
“The transplants, deprived of enough suppliers, would have to rely on imported vehicles while they scramble to reorganize the supply system,” Mr. McAlinden said, speaking of the foreign companies with manufacturing plants in the United States. “That would take them about a year.”
Given Chrysler’s weakness, the new kings of the auto industry would presumably be Toyota, Honda, Nissan, Volkswagen, Ford, Mercedes-Benz, BMW and Hyundai-Kia. (Volkswagen has not yet opened a plant in the United States, and BMW and Hyundai each have one plant.)
Like the Big Three, they would together dominate manufacturing in the United States, becoming big customers for steel, aluminum, plastics, glass, machine tools, computer chips and rubber.
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.
“I don’t think people appreciate the importance of this backward linkage to the rest of manufacturing,” said Sanford Jacoby, an economic historian at the University of California, Los Angeles. “The automakers play a big role in sustaining other manufacturers.”
Gradually, the auto industry has already become less American. The smallest of the Big Three, Chrysler, was owned for a while by the German company, Daimler, before it was returned to American ownership in the form of a privately held company in a much slimmer state than its once starring role in Detroit.
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.
Vehicles built entirely abroad drive down the percentage at the foreign-owned automakers. The popular Toyota Prius, for example, is not yet manufactured in the United States. That will come soon, Toyota says. But given worldwide demand for the car, Toyota achieves economies of scale by centering production in Japan rather than using multiple sites.
Such an inclination on the part of foreign companies to keep their production out of the United States helps to explain the push by the Democrats in Congress to provide aid to keep the American automakers alive. The federal help would probably go first to G.M., which says it will run out of cash by early next year and be forced out of business without federal help.
Rather than collapse outright, a carmaker could file for bankruptcy protection. If it obtained financing, the company could then continue operating and slim down to a more manageable size, with cuts occurring over a period of months or years. But some of its operations could be taken over by another automaker or it could even be forced to liquidate.
“If the Big Three go down, a bunch of the suppliers go down, and the transplants share a number of the suppliers,” said Alan Reuther, director of the United Automobile Workers’ Washington office — trying in effect to enlist the foreign-owned makers in the effort to save the Big Three.
So far those manufacturers have stayed on the sidelines, avoiding any suggestion that they would like to see any of the American automakers disappear. “Toyota strongly believes that a strong market with vigorous competition is in everyone’s interest,” said Tina Ewald, a Toyota spokeswoman.
The Japanese automakers broke into the American market in the 1970s by exporting small, high-quality, fuel-efficient vehicles during an energy crisis. They began putting factories here in the 1980s, when import quotas and anti-Japanese sentiment threatened to restrict their American sales.
Fuel-efficient vehicles are still the strength of the Japanese and other foreign automakers at a time when such vehicles dominate what auto sales there still are in a rapidly sinking economy. The Big Three have not yet developed fuel-efficient cars as the mainstays of their fleets, and some in Congress are insisting they do that in exchange for any bailout.
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.
The downsizing in response to the slump has been harsh. More than 100,000 jobs have disappeared since January at the automakers and their suppliers, one in every 10 jobs lost in the United States this year. The three American-owned companies were responsible for most of the loss. They employ 75 percent of the nation’s 333,000 total auto workers when foreign-owned companies are included.
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.
The auto industry’s share of the gross domestic product would probably also revive, if the transplants were to build in the United States the vast majority of the cars they sold here, holding down imports.
Still, there would be one irreplaceable loss, Mr. McAlinden argued. “Right now, we do $18.5 billion of automotive research and development in a year,” he said, referring to innovative projects like the development of new types of batteries.
G.M. in particular is involved in the development of lithium ion batteries to power the next generation of cars. If G.M. disappeared, “the foreign companies would develop the batteries, but not here,” Mr. McAlinden predicted. “We would lose all the additional development connected to that technology. It would be a technology opportunity lost.”Original here
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