How important are the domestic automakers?

[TBR]

The difference is the automaker is in the manufacturing sector and the wall street firm is in the service sector.

If the auto manufacturer cuts jobs its because the manufacturer is making less cars.  So if the manufacturer cuts 1,000 jobs those workers going to have less money to spend. The auto manufacturer is also going to be buying less sub assemblies and raw materials from its suppliers.  This in turn will cause the manufacturer's suppliers to lay off workers.

If the bank lays off 1,000 workers those workers will have less to spend, but the impact to the banks suppliers is minimal.  There are no significant reductions in what the bank buys for it's daily operations, at least no reductions comparable to those that would take place at the auto manufacturer.
r

I understand that, but you don't seem to understand my point. The article say that 3 spin off jobs (defined as "jobs at businesses where auto industry workers spend their paychecks") are created by autoworkers yet a Wall Street job creates only 2.5 jobs total. This makes absolutely no sense because someone who works on Wall Street is going to spend more money than an autoworker because they have more money and, therefore, should create more of those spin off jobs.

[Byteme]

I understand that, but you don't seem to understand my point. The article say that 3 spin off jobs (defined as "jobs at businesses where auto industry workers spend their paychecks") are created by autoworkers yet a Wall Street job creates only 2.5 jobs total. This makes absolutely no sense because someone who works on Wall Street is going to spend more money than an autoworker because they have more money and, therefore, should create more of those spin off jobs.

No offense but I don't think you understood my example.  The jobs lost by suppliers when the automaker cuts back are those spin off jobs being talked about.  The direct effects, laid off workers having less to spend affects both.

An auto manufacturer cutting back production and laying people off affects what suppliers?  Glass, steel, tires, stereos, electrical components, paint, seats, oil filters, etc, etc. 

What suppliers are affected if a bank lays people off?  Copy paper, some long distance and cell phone providers, parking lot attendents?  Other stuff like office furniture and real estate-office buildings are sunk cost.

EDIT:

I just reread the article and I think you are trying to compare apples and oranges.  The article says:

Every direct job at an automaker in the United States creates five more jobs, said Sean McAlinden, chief economist and vice president for research for the Center for Automotive Research in Ann Arbor. Two of the five are related to suppliers or dealers; the other three are spinoff jobs at businesses where auto industry workers spend their paychecks.

The next closest industry to autos is high-tech, where each job creates a total of four, including spinoffs, he said. By contrast, one Wall Street position creates a total of about 2.5 jobs, yet Congress expedited aid to the financial services sector this year.

REad the highlighted portions closely. I think the apples to apples comparison is the 5 auto related jobs to the 2.5 wall street related jobs.  The part about those 5 auto related jobs being broken down to 2 being supplier related and 3 being worker spending related isn't central to the argument.  The author does not provide a comparable breakdown for the wall street worker's impact.

[Lebowski]

Of course Moore is biased.  That doesn't alter the fact that what he was reporting was a very real problem brought about by the closure of those automotive plants.

Assume you mean the now idled Toyoto Truck plant in the San Antonio area?  That plant wasn't even on the drawing borads when Roger and Me was made.

It was very real problem for Flint, Michigan.  Not for the US economy as a whole ... that's why Moore had to make his shitty movie to begin with, the rest of us didn't feel the impact.  Local areas suffer when businesses change all the time (Durham, NC has been a total shithole ever since the tobacco industry left ... too bad for Durham, but the impact is negligible for the country or even the state of NC).

The US automaker's going away is a problem for certain local economies, but the impact on the total US would be minimal.  I have too many problems of my own to care whether another Flint, where workers have been paid unrealistic inflated union wages for decades, faces the same fate.  Maybe I'm just cold.

[Lebowski]

And mind you, the same environment that's twisting the death spiral for GM/Chrysler/Ford now is doing the same to Toyota (hence the brand-new Tundra factory's extended holiday vacation).

Wrong.  Toyota doesn't face any of the systemic problems that are leading to the very predictable death of the Big 3 - namely a bloated cost structure, too much capacity and the inability to reduce that overcapacity due to union contracts, and weak balance sheets.  GM and Chrysler's dogshit product line hasn't helped, but I'd argue their poor product lineup is the result of their bloated cost structure, so to count that among the reasons for their failure would be redundant.  Toyota is being affected by a weak economy as is every other company as the normal course of the business cycle, but they will emerge from this just fine, in fact they will continue to gain share as GM/Chrysler are in their death throes.

Ad like I mentioned above, the local transplants still rely on local suppliers for many of their parts.  Those suppliers don't have a huge margin, and if they lose a good chunk of their contracts, I'd bet they'd fold too.  And I'm not sure Toyota/Honda/Nissan is in any shape to buy out all those domestic suppliers (or even any of the Big 3's empty factories) right now most of them have been running flat (Toyota has been barely break-even for the past quarter or so, Honda/Nissan are also struggling) - so their answer would be to supply the USDM by imports.

As long as American's buy cars someone will need to supply the parts.

Also, auto suppliers typically get much higher margins for their sales into Toyota and Honda than they do to GM or Ford.  Toyota/Honda see suppliers as key partners, GM has a much more adversarial relationship with its suppliers and seeks to give up as little pricing as possible to the supplier, in order to maximize their own ST profitability without any regard to the LT health of the supply chain.  We've seen how well that strategy works.

Who cares if Toyota is barely break even during a down cycle?  They have the cost structure and the balance sheet to survive.  So does Honda for certain, and probably Nissan.  Building autos is a cyclical business, Toyota turns a nice return over the business cycle, and has plenty of financial flexibility to weather the down cycle.

So yes, the loss of the Big 3 WOULD definitely be a hit to the US economy as a whole, something that would probably take years (or decades) to recover from. 

Not it would not, and nothing you have said has indicated otherwise.  It might be a disaster for isolated areas (another Flint, MI), but the short-term impact on the nation as a whole will be minimal, and the long-term impact on the US as a whole will be decidedly positive.

[TBR]

No offense but I don't think you understood my example.  The jobs lost by suppliers when the automaker cuts back are those spin off jobs being talked about.  The direct effects, laid off workers having less to spend affects both.

I don't understand why you seem to have so much trouble reading and comprehending this sentence:
"the other three are spinoff jobs at businesses where auto industry workers spend their paychecks. "

An auto manufacturer cutting back production and laying people off affects what suppliers?  Glass, steel, tires, stereos, electrical components, paint, seats, oil filters, etc, etc. 

What suppliers are affected if a bank lays people off?  Copy paper, some long distance and cell phone providers, parking lot attendents?  Other stuff like office furniture and real estate-office buildings are sunk cost.

EDIT:

I just reread the article and I think you are trying to compare apples and oranges.  The article says:

Every direct job at an automaker in the United States creates five more jobs, said Sean McAlinden, chief economist and vice president for research for the Center for Automotive Research in Ann Arbor. Two of the five are related to suppliers or dealers; the other three are spinoff jobs at businesses where auto industry workers spend their paychecks.

The next closest industry to autos is high-tech, where each job creates a total of four, including spinoffs, he said. By contrast, one Wall Street position creates a total of about 2.5 jobs, yet Congress expedited aid to the financial services sector this year.

REad the highlighted portions closely. I think the apples to apples comparison is the 5 auto related jobs to the 2.5 wall street related jobs.  The part about those 5 auto related jobs being broken down to 2 being supplier related and 3 being worker spending related isn't central to the argument.  The author does not provide a comparable breakdown for the wall street worker's impact.

It isn't central to the argument, but it is central in establishing the credibility of the article. I am not sure how you can take the rest of the article worth a grain of salt when it directly implies that autoworkers spend significantly more money than bankers and stock brokers.

Besides, money in the banking industry has pretty far reaching implications and market share gained by import manufacturers will largely be produced in the United States by American workers, this is why it makes more sense to bail out Wall Street than it does the automakers.

One more edit- Though I would like to note that I would rather not have the government bailing out anybody, even though it largely created the environment that allowed Wall Street to fail.

[Byteme]

I don't understand why you seem to have so much trouble reading and comprehending this sentence:
"the other three are spinoff jobs at businesses where auto industry workers spend their paychecks. "

I understand that.  What you are missing is the 5%, not the 3%, has to be compared with the 2.5%.

I'm done with this. 

[TBR]

I understand that.  What you are missing is the 5%, not the 3%, has to be compared with the 2.5%.

I'm done with this. 

Where did these percentages come from? We're talking about individual jobs here.

You probably should be done since it is pretty obvious you're talking out of your ass.

[Byteme]

Where did these percentages come from? We're talking about individual jobs here.

You probably should be done since it is pretty obvious you're talking out of your ass.

No, I see what you were asking.  Sorry for the confusion.  The answer is "Beats me".  Perhaps autoworkers spend more money than wall street workers or perhaps what they buy generates more jobs.  Then again, perhaps the author just screwed up the numbers.

[TBR]

It certainly is plausible that even though Wall Streeters spend more money it might be just as much a function of things being more expensive where they tend to live and therefore not creating more jobs. By the same token, however, a job on Wall Street certainly does create non-spin off jobs (in fact it is seems plausible that they create far more, it is just harder to determine what jobs are created) so, once you take that into account, the difference in spin off jobs can't really be explained away by cost of living differences.

The article seems pretty biased too me, I think the author probably manipulated data to make his case when in reality the problem he describes is as much due to the shrinking auto market as to domestic's share of that auto market shrinking.

[sportyaccordy]

We can't prop these companies up anymore. At least not until they prove they can run on their own

[traumadog]

Not it would not, and nothing you have said has indicated otherwise.  It might be a disaster for isolated areas (another Flint, MI), but the short-term impact on the nation as a whole will be minimal, and the long-term impact on the US as a whole will be decidedly positive.

"Isolated areas" are fine, unless you mean large swaths of the industrialized northeast - Michigan (obviously), Ohio, Pennsylvania, New York (western part), and Delaware all have major presence with the not-so-big 3.  And your point is predicated on "as long as Americans buy cars".  Well, the current environment of no money will put paid to that thought - America is already down to a new car sales rate that it hasn't seen in decades.

And for those decades, other American industries have been going overseas.  (textiles, consumer electronics, steel...)   And unless you really believe that America can survive on a service economy alone, I'd beg to differ that the loss of a domestic auto industry wouldn't matter.

In any case, Toyota hasn't had a long enough experience in the US for it to have had the long-term problems of the domestics (less than 30 years or so manufacturing) - they've already had unionization efforts at their factories, and I'd bet that over time, they still might unionize, especially under a Democratic administration.  Of course, Toyota & others might just "pull stakes" if the cost of labor in the US is found to be too high, and there's no domestic competition.

And the problem we have with the import companies "just taking over" is that it will continue to worsen a net negative trade balance with other countries.  As it stands, we are bleeding money to other countries (China, most notably), who prop up the American economy by buying our debt. 

And you can't tell me that Toyota, Honda, etc. are so altruistic that it will NOT take any profits out of the US and spend it at home?  Otherwise, I'd say we Americans should find a way to buy out Toyota and make it a "domestic" manufacturer.

And as for the "Wall Street spinoffs", I'm not sure what else would be spun off - except purely service jobs.  And I'd wonder what the net benefit of those service jobs would be vs. a manufacturing one.

[TBR]

And as for the "Wall Street spinoffs", I'm not sure what else would be spun off - except purely service jobs.  And I'd wonder what the net benefit of those service jobs would be vs. a manufacturing one.

Wall Street isn't some independent entity that makes money in mysterious ways, they make money by investing in American companies, that investment creates jobs. They also loan money to individuals and individuals use it to buy products created by manufacturing companies (including cars).

To clarify, while a job created in the auto sector might result in more jobs than one created on Wall Street, dollar for dollar I think money on Wall Street is going to create more jobs since it will be directed to the companies that will use it most efficiently (which would not include the Big 3).

[traumadog]

Wall Street isn't some independent entity that makes money in mysterious ways, they make money by investing in American companies, that investment creates jobs. They also loan money to individuals and individuals use it to buy products created by manufacturing companies (including cars).

To clarify, while a job created in the auto sector might result in more jobs than one created on Wall Street, dollar for dollar I think money on Wall Street is going to create more jobs since it will be directed to the companies that will use it most efficiently (which would not include the Big 3).

Except many of those high-performing companies are doing so by offshoring - how many Apple products are made in the USA?  How about Motorola?  Others, like Target are service-based, and probably don't create as many higher-paying jobs as a major manufacturer would.  Even US-specific companies, like Boeing, is offshoring some production.

And I'd argue that what got GM in to this predicament in the first place is a short-sighted focus on current stock-price-to-earnings ratio, rather than a long-term product development one.



But hey, the US has already lost a million or so jobs this year.  What's a few hundred thousand more? 

[TBR]

Except many of those high-performing companies are doing so by offshoring - how many Apple products are made in the USA?  How about Motorola?  Others, like Target are service-based, and probably don't create as many higher-paying jobs as a major manufacturer would.  Even US-specific companies, like Boeing, is offshoring some production.

And I'd argue that what got GM in to this predicament in the first place is a short-sighted focus on current stock-price-to-earnings ratio, rather than a long-term product development one.



But hey, the US has already lost a million or so jobs this year.  What's a few hundred thousand more? 

Between UAW type unions and a government insistent on raising minimum wage on a regular basis, why wouldn't they outsource? I think we need to focus on why companies outsource instead of villifying the ones that do.

GM faltered because they put the short term ahead of the long term, companies like Apple and Motorola know better.

[r0tor]

the info in the first quote smells entirely of UAW propoganda... it uses several buzzwords, is focused on the workers, and ignores the company

anyway, my 2,ooo shares of ford I bought for $2 says BAIL THEM OUT OBAMA!!!

[traumadog]

Between UAW type unions and a government insistent on raising minimum wage on a regular basis, why wouldn't they outsource? I think we need to focus on why companies outsource instead of villifying the ones that do.

GM faltered because they put the short term ahead of the long term, companies like Apple and Motorola know better.

So I'm confused here: companies that have a large offshore workforce are inherently better for US jobs than ones with a large US presence? 

[FoMoJo]

I don't understand why you seem to have so much trouble reading and comprehending this sentence:
"the other three are spinoff jobs at businesses where auto industry workers spend their paychecks. "
It isn't central to the argument, but it is central in establishing the credibility of the article. I am not sure how you can take the rest of the article worth a grain of salt when it directly implies that autoworkers spend significantly more money than bankers and stock brokers.

Besides, money in the banking industry has pretty far reaching implications and market share gained by import manufacturers will largely be produced in the United States by American workers, this is why it makes more sense to bail out Wall Street than it does the automakers.

One more edit- Though I would like to note that I would rather not have the government bailing out anybody, even though it largely created the environment that allowed Wall Street to fail.

Although I don't think a lot of research has gone into the auto workers jobs related to Wall St. jobs...it could be that because the direct automaker creates 2 spinoff jobs to auto related industries, it's the combination of the 3 jobs that create the other 3 jobs where they spend their money...sort of a one-for-one ratio.  However, the Wall St. worker creates 2.5 jobs where he spends his money...I guess he has a lot more money.

[Morris Minor]

... "chief economist and vice president for research for the Center for Automotive Research in Ann Arbor"

Gee I wonder who signs this genius's paycheck?

Why should we reward companies that have failed? This is just a Michigan welfare program. Paying people to work non-jobs for Zombie companies building cars nobody wants to buy.

[FoMoJo]

Another related bit of information Big 3 woes imperil Japanese

Japan's leading automakers are beating Detroit's Big Three in the plunging U.S. auto market, but they would sustain enormous damage if one of the domestic carmakers collapsed.

Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., the biggest foreign producers of vehicles in the United States, rely on the same parts suppliers as the U.S. automakers. So the failure or bankruptcy of a domestic automaker would also disrupt the Japanese car companies' operations in what has traditionally been their most lucrative market.

Seventy-five percent of the vehicles we build in North America are sourced in North America, and many of those suppliers are shared with the Big Three."

Japanese automakers are monitoring their suppliers more closely and working out the implications of potential outcomes -- including what one executive at a Japanese company described as the "doomsday scenarios" of a bankrupty by General Motors Corp. or Chrysler LLC -- or both.

The U.S. auto parts supply chain is already strained by a steep drop in orders reflecting the market's contraction from 16.1 million cars and trucks sold last year to an annualized selling pace of less than 11 million in October.

The supply industry, consisting of some 6,000 firms in North America, two-thirds of them in the United States, "is an integrated system," said Sean McAlinden, vice president of research at the Center for Automotive Research in Ann Arbor.

"It's a house of cards. You knock down enough of the cards in the bottom rows and it all goes down for months," he said.

"It's going to cost Toyota and Honda a great deal if this happens," McAlinden said. "They're incredibly worried."

Japan's automakers -- and their share prices -- already have suffered from the slump in U.S. demand.

Toyota, Honda and Nissan all reported sharply lower earnings for the July-September quarter.

The decline also reflected a rise in the yen that reduced the value of export earnings.

Over the past 25 years, Japan's leading automakers have invested heavily in North America, where they assemble more than half the vehicles they sell in the region.

Their aim was to limit the impact of currency fluctuations and quell protectionist sentiment by creating jobs in the United States.

Japan's automakers brought some of their top suppliers with them to the United States -- but those companies also are vulnerable to the U.S. auto industry's troubles.

"Some of the Japanese suppliers that rely on (smaller) U.S. Tier 2 and Tier 3 suppliers could also be at risk," Goss said.

Honda has U.S. suppliers that are struggling with financial challenges, said spokesman Ed Miller. But the automaker has a program to help and advise suppliers with their business planning and finances.One auto executive who spoke on condition of anonymity said some automakers and top suppliers are shifting business away from the most vulnerable parts makers -- firms with weak balance sheets and a high reliance on Chrysler for their business.

[Nethead]

If one, two, or three of the domestics go belly-up, it ain't the end of the world. 

It ain't  good,  but it ain't The Apocalypse either...