Detroit is Hemorrhaging

Includes: F, GM
by: Diane Lim Rogers

Just turn on the news or visit the CNN-Money homepage, and you’ll hear/read all the latest bad news on the economy, which yesterday seemed to highlight the particularly bad situation in the Detroit auto industry.  The headline story yesterday was the employment report, which showed that 240,000 jobs were lost in October, bringing the year’s total job losses to nearly 1.2 million.  And the year isn’t over, of course; we’ve surely got two more months of bad news to go.

The employment news looks particularly bleak for the auto industry, and that’s even before projecting the employment implications of the (more) bad news about operating losses, pay cuts, and layoffs coming from Ford (NYSE:F) and GM (NYSE:GM) yesterday.  Looking at the details in the October employment report, I note these trends:

  • 263,000 private-sector jobs were lost last month, and 1.3 million private-sector jobs have been lost since a year ago (October 2007).
  • 90,000 manufacturing jobs were lost last month (and 96,000 manufacturing production jobs), and 517,000 manufacturing jobs (and 449,000 manufacturing production jobs) have been lost since a year ago.
  • In the automobile production industry (motor vehicles and parts), “just” 9,100 jobs were lost last month, accounting for “just” 10 percent of the total manufacturing jobs lost.  But since a year ago, 131,500 auto manufacturing jobs have been lost, which is 25 percent of the total manufacturing jobs lost.  (To put this in perspective, the auto industry accounted for about 7 percent of all manufacturing jobs a year ago, now down to closer to 6 percent.)
  • Those auto industry job losses don’t count what has happened to the retail sector.  Last month alone 21,400 auto retail jobs were lost (more than half of the decline in total retail jobs), and compared with a year ago, 91,300 jobs have been lost (nearly a third of the decline in total retail jobs).
  • While the overall unemployment rate shot up (from 6.1 percent in September and just 4.8 percent a year ago) to 6.5 percent in October, the breakdown of the unemployment data shows particularly bad trends for production workers and hints at more than a temporary, cyclical downturn in auto manufacturing…
  • For example, out of the 5.1 million unemployed workers who lost their jobs or completed temporary jobs, 3.2 million (63%) were reported as permanent job losers.  And that is as many people suffering from permanent job loss now as was the total number of unemployed “job losers” a year ago.
  • The unemployment rate among production occupations (as a whole, not just auto industry) has increased from 5.6 percent a year ago to 8.9 percent now.
  • There are now 2.3 million people who have been unemployed for 27 weeks or more–22.3 percent of the total unemployed–compared with a year ago when 1.3 million of the unemployed (or 17.9 percent) had been unemployed for that long.
  • The broader measures of “labor underutilization” (which account for discouraged workers who have stopped looking, and under-employed part-time workers) are all up this month and are dramatically larger than a year ago.  The broadest measure was 8.4 percent a year ago and is now at 11.8 percent.

So yesterday’s news is bleak, particularly for the auto industry and employment in the auto industry.  And yesterday talks continued on Capitol Hill about more federal assistance to the automakers

I’ve said before that I’m not sure how much the government can or should do to help the auto industry, especially if the industry will be purged and downsized regardless, and especially if the additional money is more a bailout of executives for their bad decisions rather than assistance to the workers who are the ones really suffering from those bad decisions.  In terms of “stimulus” it seems the best the government can do in the immediate and shorter run is to help those who will lose their jobs keep living (”consuming” sounds more frivolous than I mean), and perhaps help at least some of those workers start to train for new jobs (outside the auto industry) in new places (outside Detroit). 

In terms of the health of the Detroit economy over the longer term, the government needs to pursue those policies that will encourage the industry to “transform” to the production of more energy-efficient vehicles and technologies–as President-elect Obama has proposed.  That “transformation” will take time, however, and I think it involves much more time, effort, and money, than the term “retooling” suggests.  In the meantime lots of blood will spill, and at least for a while, Detroit will need to shrink.

Sorry, Governor Granholm, but fighting against the economic tide to try to keep all the auto jobs and people in Detroit is probably not the best thing we could do for your people right now.  I think we need to help them move on.