Study: Auto Bankruptcy Fears Are Overblown


We think the government will hold off an auto bankruptcy at all costs, in part because the industry has convinced everyone that bankruptcy would be the equivalent of dropping a nuclear bomb in the midwest industrial states. But a new study says the fears are overblown and that the 3 million jobs lost number is twice the estimates.

Here’s a summary report (.pdf) from Jeffrey Werling, a University of Maryland economist:

In recent weeks, the Detroit Three (GM, Ford, and Chrysler) automobile manufacturers, the
United Auto Workers, and elected officials have been reporting that a simultaneous “shutdown
of one or more U.S. automakers could eliminate up to 3.3 million U.S. jobs.1″  However, the
threat of widespread damage from closure is much less severe than this commonly cited number. 
According to Inforum Executive Director Jeff Werling, “There have been two studies showing
that Detroit Three bankruptcy would eliminate up to 3 million jobs.  Unfortunately, underlying
these figures is an assumption that 100 per cent of total U.S. auto manufacturing capacity would
be offline.  There is little creditability to this assumption under any plausible scenario, either in
the short term or, especially, over the long haul.”
First, bankruptcy in the short term will not mean Detroit Three manufacturing will halt
completely.  Even in the depths of the worst recession in recent decades, domestic manufacturers
still would account for more than 30 per cent of domestic sales and over 40 per cent of domestic
production.  “It will be important to keep the assembly lines moving under bankruptcy, if only to
generate cash to facilitate the ultimate restructuring,” said Werling.
A more important issue, according to Werling, is to put to rest the ridiculous notion that motor
vehicle manufacturing itself might disappear from U.S. soil over the long run.  “North America
is the automotive world’s largest and most dynamic market. Read >