Auto industry crisis leads to job losses even at strong companies
When the the Detroit automakers' financial crisis started getting more media coverage a couple of months ago, a study was released by the Center for Automotive Research estimating that the possible collapse of the industry could ultimately cost up to 3 million US jobs. That estimate is based on the several hundred thousand direct jobs, plus the affected suppliers as well as businesses in the vicinity of automotive facilities. The repercussions of the recent sales collapse are already being felt in southeast Michigan and elsewhere. Even traditionally strong companies without unions are paying the price for the current economic environment. Take the case of TRW Automotive. TRW and some of its progenitor com,anies Kelsey-Hayes and Lucas, have long been among the strongest auto suppliers from a financial perspective. Unlike Delphi and Visteon, TRW has been consistently profitable over the years (Full disclosure: I worked at Kelsey-Hayes and later at TRW, after K-H was bought, from 1991-2007). Over the course of that time, there were only a couple of rounds of layoffs and there were never more than a few dozen people let go. Read to find out what has happened in 2008.
TRW spokesman John Wilkerson was contacted for this story. The only comment that Wilkerson was able to supply was the following, "TRW has continued to restructure its business on a global basis, including the Livonia complex. Reductions have varied by business unit according to current customer demand and what we anticipate for the markets in early 2009."
However, I've recently been in contact some former colleagues at TRW's headquarters complex in Livonia, MI. Since the start of 2008 there have apparently been five rounds of layoffs at the technical center. In the most recent round in mid-November, one former co-worker with 32 years of experience as a skilled technician was laid off as were numerous other engineers and technicians many with 25-30 years or more of experience.
Much of my former department has been let go, as the work they were doing has been consolidated at another facility. The most recent publicly available information about TRW indicated that the company had over 66,000 employees worldwide with 4,000 in the Detroit area, including 1,200 at the Livonia technical center. It's estimated that as many as one-third of the people in Livonia lost their jobs in the most recent round of layoffs. These are mostly college graduates with bachelors and masters degrees, and many of these same people are having a tough time finding jobs because every other company in the field is also letting people go.
These engineers are technicians are being fired because the vehicle programs they were involved in have been delayed or canceled outright. Lack of a paycheck means these people will be spending less money in the community in coming months, leading to cascading business failures and job losses. This is the real cost of the financial mess on Main St.
TRW posted strong profits even in the first two quarters of 2008. The situation has gotten dramatically worse in the second half of the year, as it has for virtually every company in this industry. Things are so bad that last week TRW even withdrew its fourth quarter and year-end financial guidance for analysts. Where and when things will ultimately bottom out is anyone's guess.
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Reader Comments (Page 1 of 1)
Noidor 1:20PM (12/20/2008)
It's a shame, but what can one expect? Americans bought way too many cars (just way too much stuff in general) without having any real savings, the only thing that facilitated these purchases were the extractions of the supposedly never disappearing home equity, and other types of cheap credit. Now that no one is lending, no one is buying, and those who do have money won't dare to purchase. There is a huge oversupply of cars , they are being shoved into every warehouse, every junkyard, etc etc. Just like home builders, they keep on building and no is buying and likely won't buy.
So of course many more jobs are going to go, but unfortunately this will be further exacerbated by bailing out automotive industry rather than letting them go into bankruptcy, fail and then have sound investors come in and fix it up. Just a ridiculously silly situation which thanks to our government won't correct itself for at least a decade.
GM, Chrysler or Ford are not telling us the whole truth, government is lying AND postponing the inevitable. This country is so off-track in expecting a quick resolution to current climate that once reality will set in then it's going to be total chaos with people being able to barely afford food and energy, and nothing else (including cars)
I find it so funny that appointing a Car Czar will help even remotely, it's a mere political step into USSR and look what kind of cars they made. It's not about building "green cars", it's about building cars that an extremely fragmented market wants.
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KLR 1:48PM (12/20/2008)
I have no problem with what GM and Ford are saying. All manufacturers are implementing or extending shutdowns and that will greatly cut inventory buildup.
I suspect GM and Ford will come out of this stronger and take back marketshare.
Chrysler? Can't tell without seeing their financials.
I think the biggest overall loser here will be Toyota. The Japanese government doesn't have much more room to help them in terms of interest rates since the Fed has dropped theirs so low.
Mike 1:50PM (12/20/2008)
You're right in that we bought too much without saving enough, easy credit made this possible and one-upsmanship is what caused our issues.
I don't however agree with your conspiracy theories that everyone's lying to us. These companies are simply trying to stay on track to come back from their recent woes that have been compounded by things out of their control that sent them spiralling into where they are now.
There are a couple of possible outcomes here. First is that they all go bankrupt, taking down many suppliers, dealers, small businesses, etc. with them. This leads to massive unemployment instantly, something we are not prepared for and cannot recover from for a long, long time.
The second possibility is that they stay around (with government assistance), the economy recovers to a sane level (we're at a rate of 10 million cars per year right now- from the last 3 months sales, lower than in 30 years, it is an artifically low number but will recover to probably between 14-15 mil instead of the 17.4 it was at last year) and they are now right sized to be able to make a profit instead of lose money. Their market share has stabalized (something that isn't discussed much). That means that if this stays true, they are in a position to make a comeback, especially since their plans don't call for any comeback in vehicle sales for two years.
The next possibility is that the economy worsens, vehicle sales stay at 10 million per year for 3+ years or even decrease, the companies gradually reduce their workforce (they have already proven their willingness to do so, they have cut to nearly 50% of their prior staffing in the last 3 years) leaving them a 50/50 chance of making it. It will soften the blow to the economy to have those numbers come gradually instead of instantly. Perhaps some of those people find jobs, if not we're in pretty deep do do anyway so I personally am hoping for number two intead of 1 or 3.
Noidor 10:34PM (12/20/2008)
Mike - thanks for being civil and not engaging into a character attack which happens quite often these days because of high emotional stress many people are experiencing. I understand where you are coming from and what you're hoping for. Of course I hope for improvement, but I'm skeptical, highly skeptical.
As I said above, I do think that economy will continue to plummet next year, albeit at a greater rate. Okay so maybe 3 will be able to do something in vicinity of reasonable, but their cars won't sell here because no one will be able to afford them because remember, no savings and no credit.
They can try and sell their cars overseas, but that won't be enough. Chrysler has very little presence elsewhere (plus their products are junk) so it's dead in the water. GM has done so-so with Opel/Vauxhall and Cadillac, very well with Chinese Buick, and poorly with Saab which is still mired with an identity crisis. Ford is the only company which is a good position simply because of their product line-up in rest of the world, they were fortunate enough to dump PAG at peak of M&A. Volvo I think is a solid brand, and hopefully they'll sell it as well.
But again pie is getting smaller and there is just no room for Chrysler. GM I think has to kill GMC, sell rights to Hummer, kill Saturn and Vauxhall and call whole thing Opel instead, sell worldwide, get rid of overlap (it looked like they were going to do so but then Chevy Traverse came along!), kill Pontiac, kill Holden and incorporate their products under Opel umbrella...kill those which don't make sense, i.e. Pontiac G3. Keep Chevy as a value brand as an alternative to Toyota, Hyundai and such.
But this won't happen, that's why GM won't make it either, even with government money.
Carlos 2:01PM (12/20/2008)
The situation will continue to get worse
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Paul 4:09PM (12/20/2008)
Hello, auto-people !
I don't trust any of Big 3. The simple reason - they still don't want to hear from the potential buyers what product kind they would like to see in the future (try contacting / suggesting them through the Internet).
So, more likely, they still will continue their way - trying building cars what CEOs - not regular buyers - will buy.
Another thing that amuses me a lot - why people do not tell the truth - that the North American cars are too expensive first of all !
How many of you can put spare money away for three - six months and be able to pay half of the new car price ? Then why do you try to push yourself in the financial jail for 5 - 10 years to pay for the car which might be ruined in the first day and loses value every month? Is that really so important for you to buy $30-$40 k car if you drive it to the job and to the store 99% of the time !? Isn't is smarter to put this money toward your home mortgage or save it for your kids ?
I can not understand why government do not force these company to have various car types and that is more important - cars which have affordable for the ordinary people price tag ? Don't try saying that the modern cars are impossible to build for less than $10000. Check some examples - the Renault Logan etc. If we had them on the market, today economic situation might be very different.
Stop foolish yourself, people! Demand the cheaper cars from these "3" ! Stop today madness when 3-4 tonns of metal on the wheels are delivering single person to his work site.
I hope that after this economic collapse, which entirely was created by people, customers bad habids in the first place will force most of us think better how to manage their money and what products to buy.
I hope because not so long ago have read perfect statement written by very smart American:
" People spend money which they don't have to buy things they don't need , trying impress people they don't like"
Looking at the latest years car trade pattern could not be said better !
Demand new, cheaper cars !
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RealityCheck 4:32PM (12/20/2008)
Please get a life! I am more then able to choose the car that I want to buy and I do not need your help.I save first and buy second because I am lucky enough to do so! Most people live day to day and month to month without a financial safety net. I hope people learn to save but most people feel that they would rather have a life when they are young enough to enjoy it. As to your cheap cars they are made everyday in the form of good used cars and this is what supply and demand is best at, providing people with the right price at the right time. The real reason that we are where we are is from greed and white collar theft that is being covered up due to extremely poor government regulation dating back to Ronald Reagan. I think they did a good job but didn't truly realize the impact that loose regulation would hit at the same time.
tim 4:12PM (12/20/2008)
hey paul, you're a buffoon.
spread the love: asian makes do the exact same thing, yet you've chosen to single out american cars and the companies that build them.
open your eyes or close your gaping mouth, you hypocrite.
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Richard 4:29PM (12/20/2008)
This isn't too difficult.
You have the big 3 making cars other than pick-ups and SUVs that people don't want. And, man, do they churn them out - way beyond the numbers demanded by the market and at a cost somewhat higher than the competition...and not because of content. Then, the dealers - of whom there are far too many, buy them on credit they get from the manufacturer's credit subsidiary. So, as the credit market erodes this whole thing goes belly up.
But it all comes back to making too many cars for too high a cost that the market doesn't want because the design and content per dollar sucks relative to the competition. And it is all about competition. Here in America, we buy what we like and can afford. If we don't like it or there is a better alternative for less, guess what happens.
Just basic "free market" stuff. Socialists have a tough time understanding it, but it's pretty straight forward.
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RealityCheck 4:59PM (12/20/2008)
I think the Big #3 made the only cars they could with the high legacy costs that were pulling them under. Everyone has said that the Union would spend every dollar the Big #3 had before making concessions that they needed to make. They even tried to have the Government ride out their contract before committing to cuts in benefits and pay that were equal to the Japanese. I know that it is hard to give back what you think you have earned but that is the problem, the union didn't earn the higher pay they blackmailed the Automakers with short strikes and using the Democrats (many of the Republicans to) with donations for reelections and fund raisers. Every time the automakers held their ground the union would shut down a vital plant and cause billions in losses to force the automakers to give in. Now is the time for change to happen and I really think that the end of the union is near. I am not anti union or a republican per say but sometimes entities either need to change or vanish. Now might be the time for the union to fade into the history books!
I always thought it was stupid to think that all 3 of the automakers were dumb at the same time but very few people realized that the outside forces in labor and legacy costs were slowly pulling them under. It also did not help that when the Germans and Japanese built plants here they were given huge tax breaks and investments that the big 3 did not get. This is why many of the new plant were built in Mexico and Canada to bypass the issues that were destroying the fabric of the auto industry. When they built in Mexico the health care costs and retirement costs helped subsidize the American worker and the difference in the Canadian dollar allowed a 30 percent difference in lower costs for many years.
I hope everyone has heard that Canada and Mexico are offering the automakers loans/grants also because they realize that the loss to them is to great to offset with other industry. They also fear that once the American companies are gone there is no reason to build cars in North America and we will have much higher prices to show for our short term vision.
Mike 6:08PM (12/20/2008)
Richard,
Your an idiot, there isn't a company out there now who hasn't overproduced. There are foreign cars piling up by the thousands (http://www.autoblog.com/2008/12/08/import-carmakers-leasing-acres-of-coast-to-store-unwanted-vehicl/) and Toyota who is now way over capacity too is looking at an operating loss this year (http://www.autoblog.com/2008/12/19/toyota-poised-for-first-annual-loss-in-71-years/).
Funny thing is that you are so blinded by your loyalty to foreign product you didn't even notice that a Ford Fusion similarly opted with AWD is about on par pricewise with a Toyota Camry FWD. Fusion has 3 years of chart topping quality and has been rated higher dynamically. So you can throw your argument out the window and keep on drinking that Kool Aid, oh yeah!
BoxerFanatic 10:34PM (12/20/2008)
@Mike,
Why in order to make a point must you denegrate others?
This is the second time in the same number of days, that I've said "No ____ is not an idiot, he is right on point." And that the appropriate statement is likely that you simply disagree with him. You can do that, even though Richard is not an idiot.
It is true that everyone is overproducing because the market has declined much faster than most could have predicted. But Richard is right, it is free market basics.
There is a lot of difference between operating at a loss for the first time, and being so near bankruptcy that you can't operate for another month without cash infusions from the government, since banks won't touch you with a 40 foot pole.
And, btw, Richard has a Subaru logo next to his name. Ford, GM, and Chrysler have NOTHING that are as capable as Subaru, for the price and equipment. I myself bought a Legacy over a Fusion, and didn't even consider Camry or Accord. I have owned 3 Fords, and would have bought a 4th, if they had something that could hold it's own against a 300hp, AWD, manual transmission equipped Legacy GT. Fusion has NOTHING. The '10 Fusion 3.5 Sport doesn't come with a manual, and they certainly haven't had one since 2005.
When the Big 3 quit advocating to STEAL my money via taxation, and make a commitment to build something that can compete for my discretionary dollars (which I don't irresponsibly borrow on a whim, btw. There are some responsible people left... pertaining to the first comment.)
Maybe then, when things return to reality, maybe I will consider them again. It isn't about brand loyalty, and it is the opposite of being a "kool aid drinker'. (if you know the context of that phrase, you realize why)
It is about buying the right product. Although the Big 3 have been on an uptick, they still have not been making enough of the right products for the right times, for a very long time. They have no one to blame but themselves. And that irresponsibility is compounded due to the fact that they are tacitly at the head of an entire industry, and STILL haven't been making responsible choices with that weight of responsibility. Since they haven't succeeded in being responsible, they are due to fail.
The unions, the suppliers, and everyone should be helping make sure that the industry operates efficiently. The suppliers, like TRW may not be the irresponsible parties, and the people being laid off may have done everything right in their own small part. But the world isn't fair, and the people at the top, including the union leadership have been selling out the people they should have been considering, and trying to do the best work, in everyone's best interests, including the consumer, who they rely on for revenue.
Until now, when they can rely on the taxpayer for revenue, without selling them anything at all.
redcars 2:54AM (12/21/2008)
Richard +, RealityCheck +, BoxerFanatic +, Mike -.
Historically, I've seen "days supply" grow for the domestics beyond the desired number frequently. Not sure if it's because of something with the production schedule, fearing strikes in near future, not being able to realize any savings with a production line shut down, or inflexibility in switching production - some lines can produce different models at the same time.
As far as SUVs, people wanted them, and they were the only vehicles the domestics were making money on given their cost structures. They either didn't care or simply ceded the car market. I say bleed it till it runs dry, but have a plan B which they didn't. You think executives with million dollar salaries would be ready for any contingency.
Having said that, Detroit couldn't make a competitive entry level vehicle profitably. Either they built it down to a price or priced it so it didn't make sense to the consumer. That's why they imported and rebadged their smallest offerings.
With high gas prices though, demand for cars was increasing. At that point, you figure they had more room to increase car prices just enough so the cost of the car and gas to run the thing was less than the cost of an SUV and the gas to run it. Interestingly if you were able to increase MPG on either side of the equation the scale would tip in that direction. But then came the credit crunch!
GoFaster58 8:24PM (12/20/2008)
Instead of being so critical of the "Big 3" , what happened yesterday is old news. Let's move forward and support our fellow americans. I'm personally sticking by Ford and hope to buy a new Ranger whenever they redesign it. But I also like the new 2010 Fusion Hybrid.
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Alpha3 10:01PM (12/20/2008)
People are critical becouse they care, and i am sorry for you.... you shoud´t buy the fusion or the ranger becouse they are american but cuz they are trully great cars, the "Big 3" have been pulled for too long becouse they are americans don´t buy a crappy Chrysler SUV buy a decent car that is that happens to be american and you cam afford
redcars 2:21AM (12/21/2008)
Yeah, buy either because you really want to. Otherwise, manufacturers and the autoworkers' union will just appeal to people's patriotism to buy their cars knowing that they can turn out crap and still have a market. It will be better you and in the long run for the manufacturers and workers who can compete on any ground.
ls1vette 10:32PM (12/20/2008)
STFU already about Americans and our nameplates as the riceballs and others are in as bad or worse shape since they totally depend on our sales and we do not since you find reasons not to buy our products.
Hmm guess you cannot blame UAW or GM for the mess your in.
Japan, Germany and Canada pledged new measures on Saturday to confront a financial crisis that has toppled banks, endangered the global auto industry and now played a part in the demise of Belgium's government.
Tokyo joined governments worldwide in pledging hundreds of billions of dollars of fiscal stimulus to lessen the impact of the crisis on their economies, many of which,
Japan's included, are already in recession.
Its extra 4.79 trillion yen ($54 billion) budget, approved by the Cabinet on Saturday, will help finance two already-unveiled spending packages totaling 10 trillion yen.
In Canada, Prime Minister Stephen Harper unleashed C$4 billion ($3.3 billion) in emergency loans to the Canadian arms of Detroit's ailing automakers to keep them operating while they restructure their businesses. The lifeline comes just a day after the White House unveiled a $17.4 billion package to shore up Detroit's auto industry.
Harper also announced two new federal measures to support the overall industry -- one to benefit automotive suppliers and a second to help consumers get credit to buy cars.
"There are literally across the country hundreds of thousands, if not millions, of potentially affected families by the distress of this industry," Harper said.
German Chancellor Angela Merkel said her country would take "a further step" in January to boost its economy, having previously limited herself to saying government leaders would meet in the new year to review the situation.
In neighboring Belgium, King Albert consulted political leaders after the government collapsed following its botched attempt to bail out financial group Fortis.
Prime Minister Yves Leterme tendered his government's resignation on Friday after a report by the Supreme Court found signs of political meddling to sway a court ruling on the future of the bank, a victim of the credit crunch.
The king, who under the constitution must decide whether to accept the resignation, held successive talks with the heads of the five ruling-coalition parties until 2 a.m. on Saturday.
Consultations were to continue later in the day. Belgian media said there was little chance of Leterme staying on.
Leterme denied accusations he had sought to influence an appeal court that last week upheld a challenge by shareholders to a state-led carve-up of the bank, but acknowledged that the Supreme Court's findings made his position untenable.
The global economy's lifeblood -- credit -- remains severely constrained despite authorities spending trillions of dollars to keep money markets functioning, propping up banks and producing economic stimulus packages.
The boss of Britain's Barclays bank said it would be tough to get credit for up to two years yet.
"I think that we will see the process of reduced borrowing play out over at least the course of the next 12 months maybe, maybe 24 months," John Varley told BBC Television's Panorama program.
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GoFaster58 11:31PM (12/20/2008)
For Alpha3 I do presently own a 2000 Ford Ranger which I love. When I do buy, I will by a Ford because I like them. I've owned several different vehicles but I'm partial to Ford. I'm not critical of others who buy any other make. Some people like chocolate, some like vanilla. It's a part of what makes America great. That's it for me as I'm not pointing fingers.
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