Automakers restructuring and business contracting
By Tim Jones Tribune correspondent
April 12, 2009
April 12, 2009
In tattered and gray industrial towns across the Midwest, no one knows exactly where the ax will swing next. But there is no doubt the forced downsizing of General Motors and Chrysler, which will begin to take shape in the coming weeks, will fundamentally change the quality of life in communities and the region for years to come.
Even if both automakers survive, economists say, they will be smaller and will pay lower wages and benefits. More communities will lose production and parts plants, and the states that have relied heavily on those manufacturing jobs—especially Michigan, Indiana and Ohio — will take a big hit that, economists warn, will take years and perhaps decades to overcome.
"If you go back to 1980 to 1982, with the upheavals in the steel, rubber, glass and auto industries, that really was the end of an economic era that started in the 1890s," said Ned Hill, an economist at Cleveland State University. "This is the last movement in the symphony."
While the American auto industry played a large role in creating the modern Midwest a century ago, its unraveling has exposed the region's economic over-reliance on vehicle manufacturing. In recent decades, the demise of specialized manufacturing—shoes in Missouri, TV picture tubes in Indiana and Ohio, glass in Toledo and rubber in Akron—sent many towns and cities reeling from the loss of jobs. On a larger scale, Chicago, northwest Indiana and northeast Ohio suffered from Big Steel's slide more than 25 years ago.
But the auto industry has a much broader footprint in the region, with about two dozen assembly plants of General Motors, Chrysler and Ford in the Midwest and many hundreds of parts suppliers peppered about, according to the Federal Reserve Bank of Chicago.
"Every job in the auto industry usually can be responsible for five to six jobs in general throughout the entire economy," said Jerry Conover, director of the Indiana Business Research Center at Indiana University. "The direct and indirect effect of all of this means a lot less money circulating through the cash registers in these states."
The details of the downsizing are being discussed as GM faces a deadline at the end of May to satisfy the government's requirements for federal assistance. Chrysler has until the end of April to work out a merger deal with Italian carmaker Fiat. Those private discussions have fed rumors of plant closings around the Midwest and across the nation. Bankruptcy is an option for both automakers.
How bad would it be if one or more of the Detroit automakers failed? In perhaps the most dire forecast, the Center for Automotive Research in Ann Arbor, Mich., said the 2009 job loss would be nearly 2.5 million if there were a 50 percent cut in operations at the Big Three. Personal income would drop by $276 billion, the report forecast.
That, Hill noted, assumes the lost auto production would not be picked up by other automakers, including Honda and Toyota, which have production facilities in the Midwest. Still, even under less pessimistic projections, pain will be spread around the region as jobs are slashed and pay, health-care and retirement benefits are scaled back, Hill predicted.
"The unfortunate thing is you've got a large number of small- to mid-size communities dependent on this income," Hill said. "What's happening now will put the industrial Midwest at a bigger disadvantage."
The domestic auto industry has been shrinking since the 1980s, and some of the cities affected by that decline provide a bleak view of what may be in store for others as the industry continues to contract. For generations, Anderson, Ind., was a major parts supplier for GM, but most of those operations have been gradually shut down over the past 25 years. Anderson, which has struggled to regain its economic footing, is defined by a disproportionate number of senior residents, steady job losses and wages at less than 75 percent of the U.S. average, according to a report from STATS Indiana.
In nearby Muncie, Ind., another city that supplied GM, the last of the major suppliers is scheduled to complete its shutdown later this year. The average wage has dropped in Muncie, which is making a painful transition from a well-paying manufacturing economy to one dominated by health care and Ball State University.
"It takes decades to make the adjustment," said Roy Budd, executive director of Energize-East Central Indiana, a non-profit economic development group. "I think we've trough-ed out and are on the upswing. But it takes a lot of time. We didn't get into it overnight and won't get out of it overnight."
The economic crisis has made Michigan, once one of the more prosperous states, a net population loser, with 109,000 more people moving out last year than moved in, according to census data. Among the obstacles for the region to recover, Conover said, is the relatively low percentage of college graduates in these states. The national average of people with a bachelor's degree or more is 27.5 percent, according to the Census Bureau. The percentages in Michigan, Ohio and Indiana are 24.7, 24.1 and 22.1, respectively.
The questions of how, and indeed whether, GM and Chrysler survive will begin to be answered in a few weeks, and then any affected communities will begin the adjustment to life without their biggest breadwinner.
"This is pretty devastating stuff," Hill said. "It takes almost 20 years to rebuild your economy, and usually you waste five to six years because of denial."
tmjones@tribune.com
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