Saving The Car Industry While Killing Employment

GM’s Chapter 11 filing shows that it will hold onto its highly successful Latin American and Chinese operations. From the standpoint of its new shareholders that makes sense. Both of the overseas markets are growing while GM’s  businesses in North America and Europe are not. The No.1 US car company is close to selling off most of what it owns on the continent.

The troubling aspect of GM’s strategy to rebuild its operations into a profitable enterprise is that the firm will make investments outside the US to create jobs while it takes actions in the US that will increase unemployment in the car industry and among parts manufacturers and dealers. Taxpayer dollars are going to support actions that are likely to increase joblessness in America. Consumer spending will be undermined and more people will be forced out of their homes or onto the rolls of those that need financial support from the US or state governments. That, in turn, puts a larger burden on taxpayers who are still employed.

According to The New York Times, “Auto suppliers, which employ more workers than the car companies themselves, have cut way back, almost hibernating, as they lay off employees earning $10 to $22 an hour, or cut back their hours.” So the job destruction is spreading well beyond the car companies themselves, raising the possibility that the restructuring of Detroit could cost hundreds of thousand of jobs at the same moment when the federal government is spending tens of billions of dollars to create or save three million jobs. The two actions collide and the effects of the stimulus package are likely to be the eventual loser.

The government may save the American car industry. But, that is hardly guaranteed. There is no assurance that the market share of car companies based in Europe and Asia will not grow as they take advantage of stripped down versions of GM and Chrysler.

What is certain is that the potential salvation of Detroit will cost more than it is worth when the unemployment head count is added up.

Douglas A. McIntyre