Expert Examines Impact Of Big Three's Collapse

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The Big Three automakers say they are on the brink of collapse. A recent study by the Center for Automotive Research says a total failure in Detroit could lead to a loss of 3 million jobs nationally. Patrick Anderson, CEO of the Anderson Financial Group, offers his insight.


While Congress and the Bush administrations lurch toward some kind of bailout for the auto industry, we're going to take a look now at the impact if one, two, or even all three of the big three automakers should fail in the coming months. The Center for Automotive Research estimates that nearly three million jobs would be lost nationally if there were a total collapse of the Detroit auto industry, in other words, the end of GM, Ford, and Chrysler. Members of Congress from Michigan, who asked Secretary Paulson for help in getting a bailout, have written that one job in every ten in the United States depends in some way on the auto industry. Well, Patrick Anderson has been crunching some of these numbers. He's CEO of the Anderson Economic Group in East Lansing, Michigan, and he joins us from there. Where do these numbers come from, three million jobs lost, if all the big three automakers should collapse?

Mr. PATRICK ANDERSON (Principal and CEO, Anderson Economic Group): If you really go around and you try to add up all the jobs that are directly related to the automobile industry, you come up with an enormous fraction for any industry of the total amount of employment and also very high wage employment and also very hi-tech employment. So, as an indication of the overall scale of the industry, I think that's a fair one.

SIEGEL: Let's say, though, that the complete collapse of the US auto industry seems unlikely, it would seem that some part of it could survive even an economic catastrophe. If half of the industry went away, would we lose 1.5 million jobs in that case?

Mr. ANDERSON: I think it's a stretch to contemplate losing a million jobs because of a bankruptcy of one or more auto makers. It is not a stretch, though, to say that the bankruptcy of one of the Detroit Three, what we used to call the Big Three, would be an economic catastrophe for some parts of the country, and have dramatic and negative effects in all 50 states. One likely occurrence, even of a merger, would be that there would be at least one business closing in every single mid-sized town in America.

SIEGEL: But we're going to buy, Americans are going to buy so many millions of cars, regardless of where the company that makes the car is based. Wouldn't there be just as many people selling cars, repairing cars, and selling you parts for those cars, even if all the cars were made by companies owned by Japanese and German firms, lets say?

Mr. ANDERSON: In fact, our analysis supports a conservative look at things, as if, that if one automobile company goes out of business, other auto companies do in fact sell products into that and replace a lot of that. We're not assuming that people start walking or taking bicycles. What we do look at when we say it's possible for one auto maker in the United States to end up in bankruptcy, is you would see first the direct employment at those automakers would essentially vanish or maybe just a fraction would remain. Lots of suppliers would also declare bankruptcy and lots of dealers. Some of that would get replaced, but there's no way that you would end up getting anywhere near the number of production, supply, and other jobs that you have now with the GM, Ford, and Chrysler in the United States.

SIEGEL: If we were to try to imagine the best case outcome as right now for Detroit, some combination of bailout or whatever is most effective in terms of a possible merger between GM and Chrysler. In the best case, do you still assume that there will have to be layoffs, or for that matter, permanent job loses in the US auto making industry?

Mr. ANDERSON: Our assessment is that you're likely to see a loss of 30 or 40,000 jobs at the automakers themselves. Even under a good scenario where you get federal financing, and you see a merger between two of the three entities and a preservation of a lot of models and a preservation of the design staffs to some degree, and a preservation of some of the dealer network. If instead, we go and see a bankruptcy or simply an auctioning off and breaking up, you could easily see that be double the loss in the direct jobs. And for every one of those, you have to assume there's another one or maybe one and a quarter job at a supplier or at a dealer that would also go away.

SIEGEL: Well, Mr. Anderson, thank you very much for talking with us today.

Mr. ANDERSON: I enjoyed talking with you.

SIEGEL: It's Patrick Anderson speaking to us from East Lansing, Michigan where he is the CEO of the Anderson Economic Group.

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