Auto Suppliers Hit in Downturn
If auto manufactures fail, spin off industries could cut thousands of jobs. In all, some 2.5 million workers could lose their jobs.
Jul 31, 202049K Shares653.6K Views
General Motors production line. (Flickr: steelcityhobbies)
As some policy-makers warn of the cascading effect that an automaker failure would have on the nation’s economy, many auto-parts suppliers have a message for Washington: the dominoes are already falling.
From the glass manufacturers who craft windshields to the upholsters who stitch seatbelts, auto-parts makers nationwide are reeling from the reluctance of consumers to splurge on new vehicles. Suppliers in California, the Carolinas and everywhere in between have laid off thousands of workers in the past year. And the forecast only gets worse for each day the credit markets remain frozen and the recession deepens.
Illustration by: Matt Mahurin
“We’re seeing pretty significant erosion in the demand base,” said Mark Miller, controller of the Viam Manufacturing plant in Manchester, Tenn., which makes floor mats for members of Detroit’s Big Three and the foreign transplants alike. “There are going to be a lot of suppliers who won’t be here anymore at the end of 2009.”
Miller’s comments arrive as Detroit’s Big Three automakers — General Motors, Chrysler and Ford — are burning through cash at a rate of billions of dollars each month. On Friday — just days after Chrysler announcedit will shut down all production for at least a month — the Bush administration unveiled a planto provide $17.4 billionin short-term emergency loans to G.M. and Chrysler to keep them afloat through March. (Ford says it has enough cash to survive 2009 without government help.) But many wonder what good that money will do if consumers continue to resist car purchases.
It won’t just be Big Three employees to suffer if car sales don’t rebound. Matthew N. Murray, executive director of the University of Tennessee’s Center for Business and Economic Research, said that every automaker job lost in Tennessee would lead to the evaporation of four others down the line — two in the supplier-related industries (glass, upholstery, etc.) and two in the services-related industries, known as “spin-offs” (dentists, hairdressers, etc.). By that measure, if the state lost G.M.’s Saturn plant near Nashville, which employs somewhere in the area of 7,000 workers, total unemployment could reach 35,000.
“That’s a huge hit for a state like Tennessee,” Murray said.
David Cole, chairman of the Center for Automotive Research, said that the number of supplier and spin-off jobs created by auto-manufacturing can, in some states, reach as high as 10 for every worker in an auto-manufacturing plant.
In a report released last month, C.A.R. found that if half of Detroit’s auto production were to cease, roughly 240,000 Big Three jobs would be lost in 2009, followed by 795,000 supplier jobs and 1.4 million spin-off jobs. Grand total: nearly 2.5 million.
“Manufacturing,” Cole said, “is in deep trouble.”
It’s largely the threat to these second- and third-tier jobs that’s prompted the urgency from Washington policy-makers to intervene with efforts to prevent Detroit’s collapse.
Some companies are better poised than others to handle the downturn. With a diversified client base and some cash on hand, Viam hasn’t had to lay off any of its 350 employees, Miller said. Still, the plant is shuttering its doors for two weeks this holiday season instead of the usual one, and Miller is preparing for “a complete bear” of an economy in 2009. “No supplier,” he said, “is going to be exempt from this.”
No one has to convince Jon Walter, the president and CEO of Heckethorn Manufacturing Co., which has been cranking out auto parts in Dyersburg, Tenn. since 1957. Walter has been forced to put 200 employees — nearly half of its workforce — on “indefinite leave.” And the worst may be yet to come.
“Due to the virtual industry shutdown in January, we will only have a handful of people working,” Walter, whose company makes hangers that attach exhaust systems, said in an email. “February may not be much better. Conditions will not improve until people start buying vehicles.”
Tales like Walter’s are being repeated nationwide. In Iowa City, 170 employeesof International Automotive Component have lost their jobs since September. In Columbia, Missouri, 50 workersof Dana Corp. were laid off earlier this month. Last Tuesday in Kettering, Ohio, auto-parts maker Tenneco Inc. announced the firing of 100 workers— one-third of the plant’s employees. In Opelika, Ala., Mando Corp., a Korean-based auto-parts maker, announced on Friday that it will temporarily get rid of half of its 400 employees. And the list goes on.
Auto-part retailers are feeling the pinch as well. Thomas Lee, who owns the Continental Auto Parts chain, based in Harrisburg, Pa., said he’s eliminated overtime and many deliveries in order to stay afloat during the downturn. Car owners are still coming to him when their vehicles have safety problems that can’t go ignored, Lee said, “but when they have a minor cosmetic problem, they’re not fixing it.”
Supporters of the Bush administration’s bailout plan claim it’s necessary to get the automakers back on their feet, keep workers in jobs and prevent the economy from worsening.
Appearing Friday on CNN, Michigan Gov. Jennifer Granholm (D) applauded the White House for taking a step she claimed will save millions of jobs. “Today, we are all in Michigan, and frankly, the three million workers across the country whose jobs are saved, at least temporarily, we are saying thank you to President Bush for stepping in,” Granholm said.
For Dave Nelson, however, the help comes too late to save some workers. The plant manager at Virginia Forge Company, Nelson said sales are down 40 percent this year, forcing the plant to downsize from 63 to 49 employees since January. In 2007, he said, the Buchanan, Va., company forged 4.1 million wheel bearings; through October of this year, the number was just 2.5 million. Whether more layoffs are necessary, Nelson added, “depends on what happens next year.”
Armed with more than $17 billion in taxpayer loans, the Big Three have vowed to come up with new business models to return their sinking companies to profitability. Yet no new line of vehicleswill solve their troubles unless consumers can access the credit to buy them. For that reason, suppliers are bracing for a difficult ride ahead.
“There’s no doubt that sales will be down in 2009,” said Miller, of Viam. “It’s going to be a real domino effect.”
Rhyley Carney
Reviewer
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