Quarter million jobs could be lost

MarketWatch, Jun 1, 2009

Quarter million jobs could be lost in bankruptcies

Economic impact depends on how quickly the automaker emerges

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) -- Once upon a time, the failure of General Motors Corp. would have shaken the entire U.S. economy to its foundation. But the once-mighty auto giant has already shrunk so much that its bankruptcy may be hardly noticed by an economy that has much bigger problems.

If all goes according to plan, the bankruptcies of GM and Chrysler, which went bankrupt in late April, could cost about a quarter million people their jobs over the next year and a half, according to one researcher.

GM formally filed for bankruptcy protection Monday morning. See related story.

Whether GM's bankruptcy turns out to be a major or minor chapter in U.S. economic history will depend greatly on how quickly and painlessly it emerges as a new company, ready to compete, said Sean McAlinden, a top researcher at the Center for Automotive Research, a nonprofit research organization funded in part by the industry.

In its reorganization as it comes out of bankruptcy, GM will employ fewer workers, operate fewer plants and produce fewer cars, even in the best-case scenario.

Much of the required downsizing has already taken place as GM's position as the pre-eminent car maker in the world has eroded over the past three decades. During that time, GM's U.S. workforce has fallen from a high of 620,000 in 1979 to about 120,000 now.

Immediate impact

The company, the government and the United Auto Workers union hope GM can emerge from bankruptcy quickly, without hurting its key suppliers too much. If the bankruptcy isn't quick, however, the economic damage could be widespread.

When Chrysler declared bankruptcy, it shuttered its plants and furloughed its 27,000 hourly production workers. Those workers are expected to be called back later in the summer if all goes well in court and in the economy.

GM's bankruptcy could also lead to temporary layoffs of most or all of its 61,000 production workers. The company already has plans to temporarily shut 13 plants to reduce inventories, affecting about 25,000 GM workers and a comparable number who work for suppliers.

The statistical treatment of those workers, which determines when and where they show up in unemployment data, is complicated.

Furloughed workers show up in weekly jobless claims data, but won't be counted in the monthly payroll survey. Because they remain on the payroll while they receive severance payments, the company will report them as employed. However, they may show up in the unemployment figures, which are based on a separate survey of households.

The lost production at Chrysler and GM will reduce gross domestic product by about 0.7 percentage points in the second quarter, not a "dramatic" effect, said Abiel Reinhart, an economist for JPMorgan Chase Bank. Falling auto production cut 1.4 percentage points in the first quarter, he said.

Longer impact

A quick detour into court and back out would probably leave GM's relations with suppliers, dealers and customers largely intact even as it slowly loses market share. In that case, the economic impact would be relatively minor, if auto sales and production slowly recover over the next two years as expected.

In the best case, about 21,000 hourly GM workers are expected to lose their jobs by the end of 2010 as GM shutters 14 to 16 plants, according to the company's reorganization plan.

GM also plans to close dealerships, but the overall employment impact of those franchises closing should be minor, because any sales or maintenance business lost at one dealer would be picked up at another lot or garage. The average dealer has about 50 employees; remaining dealers would probably get larger.

Including jobs lost at suppliers and those lost at other companies indirectly because of reduced income, total jobs lost from the GM and Chrysler bankruptcies would total about 250,000 over the next 19 months, according to a study written by McAlinden.

That's a lot of jobs, but it pales in comparison with the 5.7 million jobs lost nationwide since the recession began. It doesn't even match the 281,000 jobs that the auto industry alone has lost since December 2007.

Counting the jobs at suppliers and at companies that have lost business because laid-off workers aren't spending so much, an estimated 1 million jobs across all sectors have already been lost due to the troubles in the industry, McAlinden said.

What GM loses in market share over time would largely be replaced by Ford and the foreign automakers' U.S. operations, said Haig Stoddard, an auto analyst for IHS Global Insight. That means jobs lost in GM plants could be offset by positions added at Ford, Toyota or Honda plants elsewhere as the industry rebounds.

That's if everything goes according to plan.

But if the bankruptcy isn't smooth, a protracted legal battle in court could have dire consequences that could be felt across the economy, with about 1.8 million jobs lost over the next 19 months, according to the CAR study.

A protracted legal battle could nearly destroy GM as a company and take down many of its suppliers, who also supply parts to Ford, Toyota and other automakers, said McAlinden. It would take time to establish new supply chains if major parts suppliers failed.

Rex Nutting is Washington bureau chief of MarketWatch.