The Credit Crisis and the Auto Industry

Senior Fellow Gary Burtless says the credit crisis has resulted in a serious domino affect for the auto industry where the consumer can’t borrow to buy cars and auto makers can’t borrow to stay afloat – this can have a profound impact on unemployment rates, he notes.

Transcript:

“More recently the credit crisis has meant that is very expensive for people to borrow money to get a car and it’s prohibitively expensive for the big three automakers to get credit in order to keep their operations going, so automakers have suffered a double whammy, their customers can’t borrow funds in order buy their product they can’t borrow funds in order to keep their operations going. Well, the second crisis, the crisis of confidence is hurting all automakers in the world. In November sales of the main three Japanese automakers here in the United States fell even further than those of Ford, so all the automakers are hurt by the economics crisis, and that’s what making their plight so grim right now. They need to have a revival in the auto market in general if their ever going to return to profitability.”

“…The big three directly employ a little less than a quarter a million workers, so those jobs would be toast. In addition the parts supply industry in the United States employs another five hundred seven hundred thousand workers, and lot of those jobs would also disappear if the big three disappeared. In addition there probably would even be problems at the auto assembly plants of Japanese automakers and European automakers who have operations here in the United States, and the reason for that is if the parts supply companies selling goods and services to the big three are hurt they could go out of business, and that would disrupt the supply chain for other automakers here in the United States, and finally there is about one point one million workers I think in auto dealerships, and a very large percentage of those jobs are in dealers that sell big three products, so my guess would be the initial impact of the bankruptcy of the big three would be somewhere between one and one point three million workers, and that excludes all of the spillover affects on the communities where assembly plants are located, where auto parts factories are located, where big auto dealerships are located. Clearly if there are a lot of unemployed workers there the banks and the stores and service providers that sell products to these families would also be badly hurt, and they would let a lot of their workers go too, so I think we are talking about an increase in the current unemployment rate of more than one percentage point within about four of five months.”