Chris Berry On The Net

In an effort to gain support for a $25 Billion federal bailout, Detroit automakers are engaging in a shameless disinformation campaign designed to create a wave of panic regarding the economic fallout from their potential collapse. While there is no question that the failure of the Big Three would have a significant detrimental impact in the short-term, the extent of the damage to our economy has been grossly exaggerated. Hopefully taxpayers and lawmakers will see though this ploy and not give in to the ridiculous threats.

One of the most blatant falsehoods is the frequently repeated claim that 1 in 10 American jobs is directly related to the U.S. automobile industry. The claim is based on a 2003 study by the Center for Automotive Research using data collected between 1998 and 2001. Not only have the domestic auto manufacturers already shed hundreds of thousands of jobs since then, but the report is based on the entire U.S. industry including Toyota, Honda, Mercedes Benz-Benz, BMW, Subaru, Nissan, and Hyundai who all manufacture cars in U.S. plants.

The study also goes to ridiculous lengths to establish a relationship between various jobs and the auto industry. If the 1 in 10 figure is true, that would mean 14 million jobs would be threatened in the event of a Detroit collapse. It’s perfectly legitimate to include Big Three employees and those of their exclusive suppliers, but the report goes far beyond this to include workers with even the most tenuous connection to the industry. It actually counts taxi drivers and car wash employees among those with a direct relationship to auto manufacturing. Are we really supposed to believe that every car wash in the country would go out of business if GM stopped producing cars?

Detroit also claims that the employees of their 14,000 U.S. dealerships would lose their jobs if the companies are allowed to fail. The fact is that hundreds of these dealerships already close every year as a result of excess capacity. The enormous dealer infrastructure is a relic of the days when Detroit controlled virtually the entire domestic market for automobile sales. Foreign manufacturers now account for roughly half of all U.S. auto sales, and they do it with a dealer network that is less than half the size of the domestic brands. One of the keys to the survival of the Big Three is a dramatic downsizing of their dealer networks. The sad fact is that many of these jobs are going to be lost no matter what.

Recent ads run by the Big Three have gone so far as to claim that all domestic auto production would come to a halt if they are allowed to fail. This tenuous claim is based on the assumption that all of the major parts suppliers would also fail in their wake. There is simply no evidence to support this claim. While it is true that many suppliers would be forced to reorganize in the event of a total collapse of the domestic manufacturers, the notion that they would cease to exist is pure nonsense.

It should also be noted that this entire doom and gloom scenario is based on the assumption that without a federal bailout, the Detroit automakers will simply vanish. This is absolutely not true. While the prospect of operating under Chapter 11 represents a real risk that consumers will be reluctant to buy their products, when faced with the ultimate decision between reorganization and liquidation, common sense will prevail. When they emerge from bankruptcy protection they will be much smaller than they are today, but they are absolutely not going away. Congressional leaders must understand this and have the courage to call their bluff.

RELATED POST

Rewarding Failure Only Postpones The Inevitable