Just three weeks ago U.S. auto executives came to Washington begging for financial assistance for the industry and were met with skepticism and derision. The biggest news that came out of Capitol Hill was the manner in which the CEO’s were figuratively raked over hot coals for arriving in the nation’s capital in corporate jets at a time when such symbols of excess smack of arrogance and complete indifference to the plight of millions of Americans who are facing financial disaster in this recession. So, a week later they returned to the Hill, this time in hybrid vehicles and noticeably contrite, hopeful that a new attitude might sway lawmakers. Not so. They ran up against Senate Republicans, led by Senator Richard Shelby of Alabama, who sensed an opportunity to score political points as well as beat up on organized labor in the process.
Now it seems the joke might be on Congress. And no one is laughing. The decision by Chrysler to extend a holiday shutdown into a month long hiatus suggests the automaker is running desperately low on cash and will soon be forced to layoff workers, eliminate brands or worse, sell the company or go out of business. The latter has become more and more a possibility for Chrysler, which, among the “Big Three,” is probably closest to having its epitaph written. If the company should fail, it could drag General Motors down too as it has acknowledged its fortunes is tied to its Detroit competitors because of the interlocking relationships between suppliers. A failure of Chrysler or General Motors would be a major blow to the economy, coming after a month of huge job losses and the prospect that December’s numbers may be equally bad or even worse.
While Chrysler struggles to hold on, even the Ford Motor Company, universally acknowledged as being in better shape, has announced a slowdown in production for the start of the New Year. Meanwhile, the White House moved at a snail’s pace in determining whether the auto industry can access the initial $700 billion bailout fund that was originally intended to cover bad mortgage loans made by financial institutions. Today President Bush (see White House video) announced an aid package to Chrysler and General Motors that includes $13.4 billion in short-term financing and $3.4 billion to be accessible at a later date. As a condition to receive the aid the auto industry must reduce their debt by two-thirds and reach an agreement with the United Auto Workers (UAW) to cut wages and benefits so the companies are competitive with their foreign counterparts. The UAW had already signaled it was ready to make some concessions but the specific “give backs” will require intense negotiation between labor and the auto makers.
The real question is whether the aid will be too little, too late for Chrysler and what effect will it have on their and GM’s first quarter of 2009. The original compromise $15 billion package, pared back from the initial $34 billion request, was meant to help the two companies make it through March. If sales continue to slump, and by all indications consumers access to credit to purchase vehicles is limited, the industry will have a difficult time even stabilizing their operations in one quarter and will likely need additional aid come spring. In addition, several Japanese automakers with a large footprint in the U.S. domestic auto market have also made clear that they are seeking support from the federal government as well, given the thousands of American workers they employ.
There is a “Main Street” element to what is happening to the auto industry that is often missed by industry outsiders who seem intent to let Detroit collapse. If large numbers of auto workers, and workers in industries that supply car manufacturers, end up furloughed or lose their jobs permanently, the tremor will be felt in a very real way in communities, large and small, across the country. The first impact will be a cutback on spending on goods as the unemployed try to save as much cash as possible to tide them over until work can be found. So, local businesses – restaurants, retail, supermarkets, recreational establishments, movie theaters – will be the first to be impacted. Visible signs of the impact will be evident in darkened storefronts and the ripple of layoffs as businesses have no choice but to scale back in the wake of declining sales. Further down the line the home mortgage market could see another spike in foreclosures as displaced workers fall behind on payments. The sheer numbers of auto related workers should provoked a greater sense of urgency in Congress and the White House to come up with a reasonable aid package, since widespread layoffs would overwhelm any of the current efforts to stem foreclosures.
While, according to the Center for Economic and Policy Research, the share of Black workers in the auto industry has declined to 1.3 percent from 2.1 percent in 1979, the fact that these jobs represent the path to the middle class means that the economic stability of many Black communities will be impacted. Black auto workers, who are paid good wages, comprise a segment of the Black community that had the means to purchase homes, spend money on goods and services, and pay for their children’s higher education. They, and other Black, blue collar and white collar workers, are also the backbone of many community and faith-based organizations; providing the financial support and volunteer services for many programs that strengthen family and community life. When these workers lose their jobs the pain is felt beyond the immediate household and across the community. For decades the auto industry was the means to a middle class lifestyle for many Blacks and the decline of the U.S. manufacturing base and Black workers has a real economic impact upon the Black community.