Job loss Impact of Big 3 bankruptcy overstated

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Detroit-Three Bankruptcy: While impact would be severe, oft-quoted job loss figures are
misleading and overstated says a University of Maryland economist. In the worse case scenario,
peak job dislocation from restructuring would be half of the 3 million commonly cited.

In recent weeks, the Detroit Three (GM, Ford, and Chrysler) automobile manufacturers, the United
Auto Workers, and elected officials have been reporting that a simultaneous “shutdown of one or
more U.S. automakers could eliminate up to 3.3 million U.S. jobs.1” However, the threat of
widespread damage from closure is much less severe than this commonly cited number. According
to Inforum Executive Director Jeff Werling, “There have been two studies showing that Detroit
Three bankruptcy would eliminate up to 3 million jobs. Unfortunately, underlying these figures is
an assumption that 100 percent of total U.S. auto manufacturing capacity would be offline. There is
little creditability to this assumption under any plausible scenario, either in the short term or,
especially, over the long haul.”

First, bankruptcy in the short term will not mean Detroit Three manufacturing will halt completely.
Even in the depths of the worst recession in recent decades, domestic manufacturers still would
account for more than 30 percent of domestic sales and over 40 percent of domestic production. “It
will be important to keep the assembly lines moving under bankruptcy, if only to generate cash to
facilitate the ultimate restructuring,” said Werling.

A more important issue, according to Werling, is to put to rest the ridiculous notion that motor
vehicle manufacturing itself might disappear from U.S. soil over the long run. “North America is
the automotive world’s largest and most dynamic market. Significant global vehicle manufacturers
must have substantial operating presence in this most important market, if only to be close to the
customer in a fiercely competitive arena. They also must have access to the world’s best
manufacturing, research, and development talent housed in supply chain partners and in
universities. Finally, much of the Detroit Three manufacturing capacity is among the most
advanced and efficient in the world, and surely would play an operating role in the future North
American market, no matter the ultimate ownership reshuffling that might result from
restructuring.”

Read the full article at Inforum

Date published: Dec 16, 2008

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