Thursday, May 14, 2009

Auto Layoffs Hit the System - With the Dealers Yet to Come

No one could have predicted... well, we could, and we did, and I'm not exactly sure why the Labor Department or the economic experts didn't see this coming...

The number of U.S. workers filing new claims for jobless benefits rose more than expected last week, government data showed on Thursday, pushed up by auto plant shutdowns related to Chrysler's bankruptcy.

Initial claims for state unemployment insurance benefits increased 32,000 to a seasonally adjusted 637,000 in the week ended May 9, the Labor Department said, reversing an easing trend of the previous two weeks.

A Labor Department official said "a good part of the increase is due to automotive states and claims."

This does not bode well for Michigan's unemployment stats, due out soon. Not only do we have to contend with the plant shutdowns themselves, we are looking at a big auto parts supplier fallout as well. As parts employment comprises of 54% of our auto-related jobs, the small layoffs that you hear about, such as the 30 workers at Metaldyne in Middleville that were directly related to Chrysler, are going to add up in a big way for us in the next few months - and we haven't even gotten to the full impact of GM yet.

This is just the beginning of auto-related job loss for America. According to the Center for Automotive Research, a full 50% of the jobs are associated with dealerships - and today, the Chrysler ax is starting to fall. 789 dealers will be eliminated; WOOD TV just rattled off a few of the local names, and they are actually running a crawl on the bottom of the screen with the story. Watch for that to be repeated across the state today, as they are saying that 30+ (edit: 39 is the total number) dealerships in Michigan will close.

Natural disaster analogies abound here, for it's hard to quantify the losses without grabbing for an event that can cause such devastation. Granholm: "Economic hurricane like Katrina". Obama: "Not a hurricane like Katrina". Arne Duncan yesterday: "Detroit schools like New Orleans after Katrina". I'll go all of you one better - this is like an earthquake. High gas prices were the foreshock, the sub-prime meltdown was the main event causing the deepening of the recession that brought sales to a halt, and the auto bankruptcies are big aftershocks. That doesn't quite work, but it works better than the one time event of a hurricane that hits and moves on.

Now, think of the dealerships as a tsunami, as they take out major parts of entire communities, especially in rural areas. The Freep provided the figures:

Each of those dealerships, on average, employs 53 people, so 159,000 workers nationwide could lose their jobs. That's more than GM and Chrysler's combined U.S. workforces.

The impact extends even further. Powerful dealers have long been community leaders, donating to everything from political campaigns to Little League baseball teams and churches.

What's more, closed dealerships change the landscape of communities, leaving behind thousands of empty stores and sprawling parking lots in an already struggling real estate market.

And even they used the term "shock" as they spelled out the consequences in further detail.

Indirect shocks also will be felt by bankers, insurance agencies, auto-parts stores, fast-food restaurants and newspapers, radio and TV stations throughout the country that depend on advertising revenue from local auto dealers. The average dealership, for example, spends about $400,000 a year on advertising, the National Automobile Dealers Association said.

"For every job in a dealership, there is one other job in the community associated with it," said Kim Hill, who tracks the impact of auto industry contraction on communities at Ann Arbor's Center for Automotive Research.

Just one? Sounds like a lot more than that, as all those industries will feel the pain of having dealerships close in their communities - not to mention the bottom line for city and state revenue.

On Capitol Hill, dealers plan to point out that the average dealership employee earns $40,000 a year and pays $7,500 in local, state and federal taxes. Among their many arguments, they also plan to note that fewer dealers also will reduce convenience for customers who need their vehicles serviced.

Many dealers are planning on fighting this, but they don't have a lot of hope when sales are still stagnant. What can we do? Nothing. "Save as many as you can" (points if you can name the movie that came from). This is the inevitable fallout of the restructuring of the industry, some would say a necessary thing, but the aftermath and rebuilding of these communities will be difficult indeed, for some time to come.

It's going to be a rough summer. Watch out for the scavenger wolves like the Mackinac Center, out there hitting the Michigan media, who want to blame unions and high wages for this; their rhetoric will be turned up to a fever pitch as they try and take advantage of this trouble and push for right-to-work laws and other extremist rightwing economic nonsense.

Hang on tight, the biggest wave is yet to come.