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3 Million Jobs and $400 Billion Dollars at Risk
Study outlines potential losses from domestic auto industry collapse
A recent study from the Ann Arbor, Michigan based Center for Automotive Research (CAR) outlines a couple different scenarios in the event the Detroit Three automakers go belly up. The report projects significant economic losses over a three-year period from 2009 through 2011, taking into account the effect on auto-related suppliers, international auto manufacturers, tax-based losses and the overall effect on the national economy.
| A recent report projects significant economic losses over a three-year period from 2009 through 2011, taking into account the effect on auto-related suppliers, international auto manufacturers, tax-based losses and the overall effect on the national economy.
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“Our model estimates that a complete shutdown of Detroit Three U.S. production would have a major impact on the U.S. economy in terms of lost wages, reductions in social security receipts, personal income taxes paid, and an increase in transfer payments,” said CAR chief economist Sean McAlinden in a press release from the company. “The government stands to lose on the level of $60 billion in the first year alone, and the three year total is well over $156 billion.”
The first scenario investigates a “100 percent reduction” in domestic manufacturer operations, or a complete shutdown of the domestic auto industry. In such a situation CAR estimates a loss of 3 million jobs across the entire U.S. employment spectrum, with only approximately 240,000 relating specifically to the manufacturers themselves. The study concludes the largest losses would be felt in “spin-off” jobs; workers and businesses generally unrelated to the auto industry. Employment figures rebound somewhat for 2011, but still show overall workforce losses of nearly 2 million. From an economic standpoint, the study finds first year personal income losses alone to be over $150 billion dollars, ballooning to nearly $400 billion by the end of 2011.
The second scenario covers a “50 percent reduction” in Detroit Three U.S. operations, through either company-wide cuts or the complete failure of one or more manufacturers. Though not quite as devastating as a total failure, CAR still estimates first-year job losses of nearly 2.5 million, shrinking to 1 million unemployed in 2011. Once again, the study predicts the largest unemployment in the non-automotive “spin-off” segments of the workforce, with direct manufacturer losses totaling approximately 200,000 at the end of the period. Personal incomes in the second scenario drop by $125 billion dollars in the first year alone, and top $275 billion by 2011. The report estimates governmental tax losses of over $100 billion for the three-year span.
The study also mentions potential economic impacts from losses in Canadian and Mexican-based industries that rely on domestic manufacturers, as well as the potential reduction and/or loss of various benefits and pension plans for retirees. Such intangibles, according to the study, indicate the two listed scenarios likely underestimate the actual impact of a total or partial failure of the domestic auto manufacturer base.
“To permit any of the Detroit Three manufacturers to collapse, would scar the U.S. economy further at a time when it can ill afford another blow,” said CAR Chairman David Cole in the company’s press release regarding the report. “The likelihood of one or two of the Detroit Three manufacturers ending operations is very real. As policymakers consider their positions on assistance to the auto industry, they must decide, is an ounce of prevention indeed worth a pound of cure?””
By: Christopher Smith, Autotropolis
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