'Intelligent discontent is the mainspring of civilization.' -- Eugene V. Debs

Thursday, October 30, 2008

The Sub-Proletarianization of America (Part 3), aka Death of Detroit (Part 2) 

From Bloomberg News:

A merger of General Motors Corp., the largest U.S. automaker, and Chrysler LLC may cost 74,000 jobs and close half of the smaller company's plants, according to a report from an accounting firm.

The combination may eliminate all but seven of Chrysler's car and truck models, Grant Thornton LLP said. Chrysler, the No. 3 U.S. automaker, would keep the Dodge Ram pickup, minivans and some Jeep models, the report said. GM and Chrysler owner Cerberus Capital Management LP are studying a merger, people familiar with the plans have said.

The automakers will probably have a tentative agreement before the Nov. 4 U.S. presidential election, said Kim Rodriguez, who leads Grant Thornton's automotive restructuring group. Still, a tie-up will be impossible without an infusion of cash to bolster the balance sheet of the new company, she said.

``It's probably not the optimal solution, but unfortunately it's the optimal solution given the facts in which we find ourselves,'' Rodriguez said in a presentation today in Southfield, Michigan.

The combined company would have to cut 24,000 Chrysler jobs, split evenly between administrative and manufacturing employees, Rodriguez said. That figure includes the already- announced 25 percent reduction in salaried workers by Chrysler.

A study released yesterday by Anderson Economic Group of East Lansing, Michigan, said the merger may cost 25,000 to 35,000 jobs.

As indicated by the following quote, Rodriquez arrived at a total of 74,000 jobs directly associated with the merger by calculating additional job losses in the auto-parts industry. But it goes beyond that:
An additional 50,000 jobs may be lost in the auto-parts industry, which would be buffeted by fewer car models and closed plants. Along with positions in shipping, advertising and other indirect services, job losses could be 100,000 to 200,000, Rodriguez estimated.

Newspapers, in particular, are going to be devastated by the merger. Communities that rely upon the manufacture, transportation and sale of automobiles are going to be hard hit as well. In addition to job losses, a lot of cities and counties rely upon auto malls for sales tax. They are going to experience significant declines in revenue when the local Chrysler dealers are consolidated with the GM ones after having already lost numerous Ford ones. Social services, such as indigent medical care and general assistance, among others, will be cut.

But these consequences, while serious, are peripheral to the job losses. Where will these people go to work after losing their auto-related jobs? Unemployment is likely to skyrocket for the next 2 to 3 years before it begins to decline. Even if they find jobs, how much will they get paid? Not nearly as much as they got paid before. Meanwhile, as I observed earlier today, their access to credit is going to get cut off, if it hasn't already.

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