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By now many of the regulars here in Firedoglake’s community have read about and signed the petition to boycott JP Morgan Chase; we know there are a lot of jobs on the line and the economy in Michigan let alone the country cannot support the weight of another 300,000 to a million more unemployed if we lose one more of the Big Three automakers.
Sure, some will scoff at the numbers, but they’re the real deal. My household is one of those which has already been impacted by the tanking automobile market, providing evidence as to the scale of the problem.
You see, one of the big misconceptions most people outside of the state of Michigan and outside of the automotive industry have is that the Big Three are automakers. In truth, they have become auto designers and auto assemblers. Everything else in between these two points can be made by another company, and in many cases, already has been made and supplied to one or all of the Big Three by a veritable shadow auto industry made up of a myriad of companies.
Take any one component of your car and it’s likely that some other supplier had a considerable role in its manufacture, perhaps even its design.
Just ask Emptywheel; her spouse worked for a supplier which manufactured the wiring harness for Chrysler vehicles.
The supply industry is a story of my family and friends. My father used to be a plant manager for an outfit that made door seals, and before that worked at a firm that made pistons and other engine components. Some of my acquaintances work for another company that manufacturers the seats in many American cars. And yet more of my friends work for a chemical company which makes the plastic resins for many automotive components.
None of these people work for the Big Three, but all of them have counted on the Big Three for their livelihood. And all of them have felt the real threat to their jobs; some have had pay cuts, cuts to benefits, cut to hours, and some have simply lost their jobs with no prospects of returning to the same kind of job in the same industry.
Many of these much smaller companies supporting the Big Three have operated for years on bare margins; it’s been this way since the late 1980s after changes to purchasing practices and ethics at the Big Three changed under the leadership of General Motors’ VP Jose Ignacio Lopez de Arriortua. There was a radical shift away from a nascent total quality management process embedded in purchasing to a process totally driven by price — and there’ve been casualties along the way, including the quality of American cars. The pressure on suppliers has been intense for years to find a way to make any profits at all, since at any time the automakers might expect a "rebate" on their purchase.
Yeah, imagine fighting a tough and bloody bidding war to supply a well-designed and inexpensive component or system, winning the low bid and making a very slim margin (or sometimes none, expecting to make it up on cost savings throughout course of the contract), only to have your 800-pound gorilla of a customer ask for a rebate at the end of the contract, before they make the last payment, so that they could make their own scanty profit, pressed as they were by rising health care costs.
It’s happened, and a lot more frequently than the average car-buying Joe SixPack realizes. It’s a dog-eat-dog, rough-and-tumble world servicing the automakers.
As we all know well, the economy took a nose dive in 2008 after a very grim summer with $4 a gallon gasoline; the stock market tanked, reducing the amount of assets people have to spend on vehicles while suppressing their urge to spend money at all. And voila, automakers which may have been flirting with profitability — and on the backs of suppliers — are now in free-fall, taking the entire industry with them. Suppliers which were on the bubble before are now up against bankruptcy and may not survive long enough to be a part of the newly revamped auto industry.
The Obama administration must have heard the pleas of auto suppliers as they’ve ponied up $5 billion in assistance. It’s a pittance considering the size of this shadow auto industry, but it’s something.
But look at the nifty graphic here, taking note of the lone green bubble labeled OEM capital equipment manufacturers…yup, they are getting bupkis. Nil. Nada.
And yet they are expected to be there when all the dust settles, after the economic hurricane has done its worst, waiting eagerly to begin the business of supplying all the equipment used by the entire industry, from the chemical companies mixing and forming resin to the assembly line itself on the plant floor of a Big Three automaker.
They may not be there.
Some of them are already gone. I think of the tiny firms, some of them only a handful of people, who represented the entire business, who provided highly unique products; they’ve had to shut their doors and walk away from their entire lives which were wrapped up in those businesses.
This week has been grueling in this household; my spouse has been working late into the evening each day pulling together all the financials, in preparation for what appears to be an orderly shutdown. His company makes equipment which moves parts and vehicles around on plant floors (reducing the number of workers required) and tests the parts before they are released into production (improving quality); their largest customers have been Big Three automakers, including Chrysler, as well as other kinds of vehicle and construction equipment firms.
But nobody is buying cars; in spite of federal stimulus monies released and stock prices trending up, nobody yet is buying construction equipment, and sales of other vehicles like trucks have similarly plummeted. Which means nobody is buying the equipment to make these items.
Nobody around the entire world is buying. It’s not just a domestic problem; requests for quotes and sales from all across Asia were common over the last two years, but they are now dried up.
And now after wage/salary cuts, and after cutting staff, there’s nothing more to cut; the waiting can’t go on as the bank financing the business won’t tolerate any losses from what it has deemed a "high-risk" business. Yes, if a company sells to the auto industry and is capital intensive, they are high-risk and their credit is cut off in a heartbeat.
Which makes Chrysler’s situation all the more trying; we know that Americans want to buy cars, but they have had difficulty with getting credit when they haven’t had difficulty with keeping their jobs. And the credit squeeze on the entire supply chain is problematic, making it difficult for the supply chain to meet customers’ needs at some nebulous point in the future. A liquidation of Chrysler will not fix any of this, will only make it catastrophically worse.
And while we’re all waiting for the soft-handed, expensively suited giants of banking to wring out of the entire auto industry whatever it is they are seeking, there are hundreds of thousands of people who are stuck in limbo and planning for the worst, suffering mental torment in advance of what appears to be the inevitable hell of job loss.
Sometime in the next few weeks, this household will likely make that final transition; the chances of any other option are extremely slim. The bank will tell the holding company to yank the plug on the plants which make capital equipment, and my spouse will have to tell his workers they are done. There will be no employee left behind, not the person whose recently had surgery and is in chemotherapy, nor the single parent struggling to keep a roof over their head and feed and clothe their child.
And there will be no sparing us; my spouse will collect his first-ever unemployment checks which won’t cover the COBRA for health care, and we will have effectively lost our investment in the company. We’d hoped it would be enough to pay for a kid’s college tuition…
At least we’ll be so happy — we and the hundreds of thousands of other working families who exist in this netherland between automaker and suppliers — that JP Morgan Chase will get all of their $2.5 billion loan back from what’s left of Chrysler after liquidation.
After all we’ve been through, won’t that be a shot in the arm for us all?
Sign the petition here. Boycott JP Morgan Chase.
18 Comments
Rayne, I’m so sorry.
This almost made me ill; this is what happened in the ag sector in the 70s and 80s, and the reverberations remain. People who knew their jobs, had ‘craft knowledge’ about the peculiarities and intricacies of a very specific group of tasks were basically tossed out of their life’s work and bankrupted. (FWIW, I remain convinced that this is one intense sector that drove right-wing politics through the 1980s and 1990s; people had been treated like yesterday’s trash and their whole world tumbled upside down in a few short years.)
The kind of knowledge they had took years to acquire, yet it was not respected, and that was during the Reagan-BushI era of emerging globalization.
The people that I encountered had done everything right, had worked themselves into exhaustion, and were up against forces so huge and impersonal that some of them were ‘crushed’ psychologically, emotionally, financially. Yet all they’d done was work their asses off and play by the rules that they’d learned growing up: thrift, hard work, fair-mindedness.
As I read this, it called to mind that part of Al Gore’s “Inconvenient Truth” where he shows Lake Chad drying up, and all that remains is desert. This is like the financial version of ‘global warming’: unpredictable, barren, severe.
Here’s hoping that somehow, there’s enough ingenuity to intervene and steer things in a new direction.
Thanks, roTL. Yeah, it’s really hard to think of the folks who’ve worked shoulder-to-shoulder with us who played by the rules and did everything they were supposed to do, who will now be discarded as “excess fungibles.”
[sigh]
Signed; I advocate the same for ALL of the major banks (BofA,Citi,Wells Fargo,etc.).
Really sad to hear of your situation and how it affects you and yours and all the others.
If I wasn’t a vet, I wouldn’t have any healthcare at all becuase -as you point out- U/I doesn’t cover the Cobra expenses (much less living expenses).
Cut my card up weeks ago.
Whoops, forgot to mention the BIG push Chase is making in CA after taking over WaMu:
http://online.wsj.com/article/…..=wsjcrmain
Maybe Gary Kishner, (818) 380-2382, gary.kishner@wamu.net needs to hear from a few people *G*
Rayne,
I am saddened to read about your situation.
I hate the banks but have owned only Hondas since 1981.
One thing I know, from personal experience: If the choice is between a painful change and a way out, people will choose the way out, even if it’s not a way out.
If the choice is between a painful change and the abyss, people who want to survive will choose painful change.
Well I bought a car in December, a Ford, so at least some of us are buying cars. If I was in charge I would merge Chrysler with GM, and drop a few brands, sell off Hummer to an Asian company where the demand for them is high, then get GMAC out of the mortgage business altogether. I hope that may still happen.
Thanks Rayne.
You know where I am on this…
Ohio will be 900,000+ …
Personally, I think Hummer should die, unless some manufacturer which specializes in up-armored military vehicles wants to produce them for a military- or NGO-use only. They never should have become personal vehicles, and our tax code should NEVER have offered a 30-plus% incentive for them (was an incentive for FARM vehicles, should have required proof of farming). The demand for those vehicles completely skewed GM’s perception of what was the appropriate blend of cars to make, or what would be acceptable in terms of fuel efficiency and quality.
The other brand which unfortunately will die is one of the Swedish automakers, probably Saab (owned by GM). If memory serves, Sweden agreed to bailout Volvo but not Saab. Can only hope that the right move is made here; either of them were better vehicles than Hummer.
And then there’s Saturn, poor thing; it was an early attempt by GM to set up a Good GM/Bad GM with the hope that improved use of techology, greater influence of Japanese management style and increased TQM that it would become a preferred brand. For some reason it was always a dud, likely another example of the American industry’s (and GM’s) inability to market effectively.
In Chrysler’s case, there has been too much overlap between Dodge and Chrysler and Jeep, probably cost them quite a bit to try to sustain so many different products with too much similarity. I don’t know which products/brands I would kill since it looks as if they are going to do that anyhow (like the Pacifica, now toast).
Yeah, I’m with you. We’ll have plenty of company.
One thing not in your story Rayne is that these same specialty companies like your husbands not only supply the Big Three but most of the so-called import companies as well.
The ditto-heads who are ripping the domestic automakers don’t seem to understand that if the supply lines dry up as a result of tanking the domestics, the imports (that their states have subsidized up to the hilt) will probably wind up dead also. And they can’t plead legacy health care costs or anything else since they are all non-union.
So don’t forget to add into the unemployment numbers all the people who work at those import plants as well because they’ll be looking for work right alongside the domestic ones.
The biggest problem with ALL the automakers is not their models or whatever – it’s total lack of credit all through the entire process from suppliers to manufacturers to dealers to consumers. Fix the credit problems and most of these companies would not be in the shape they are in – and until the credit mess gets fixed – NONE of the automakers will be ‘viable’.
Yes, maybe I should have made that clearer. God knows there were enough idiots who didn’t understand this over at the cross-posted version at DailyKos.
The weenies who bitch about the quality of American cars don’t seem to realize that the very same equipment is sold to both domestic and foreign producers. If anything, the foreign automakers of Korea and China have been able to leapfrog generations in terms of quality because they are getting the same technology as American automakers. Technology has literally been transferred by dint of using the same manufacturers of capital equipment to make nearly identical cars.
They all know what their competitors are doing; it’s not unusual for a company (foreign or domestic) to say, We need this same thing that this firm is doing — and then once preliminarily quoted, ask for the little thing that makes it fit their product alone.
And once my spouse’s firm is closed up, there’s a smaller pool of firms to draw on, with a more limited range of innovation, and a larger turn-around time from design to production. Right now 2010’s new model year is probably threatened, no matter the producer.
I hear you about the credit; a major problem is the double-standard. The hoops a so-called high-risk auto supplier has to go through to be vetted for loans of any kind and size are ridiculous, yet banks were trading CDSs like they were Pez candy and M&M’s without scratching below the surface of the underlying CDOs. Completely unfair and obstructive behavior; banks should never have been allowed to expand into investments, and ditto for insurers.
From our house to yours.
Know you and your family are in our thoughts.
Wow. I had never heard that. What bizarre crap government sometimes does.
Perceived as lower quality and they probably were a little.
I may have been wrong about the farm vehicle credits, although I am sure I read it somewhere as a friend had asked about work vehicle tax credits sometime around 2002-2003.
Read this article at Salon about Hummer’s history; the damned thing is virtually the spawn of the GOP, launching under Reagan, getting a boost under Bush I during Gulf War I, and again from tax credits under Bush II.
This excerpt is close to what I remember, although something doesn’t seem quite right about it:
I think the part that’s missing is the terms of eligibility; it may once have been narrowly defined to farm vehicles, but widened to work vehicles. Wish I could remember.
Fortunately, they killed the tax loophole — but they also killed the demand for Hummer in doing so. In other words, a sizable number of buyers would only pay about $20-$25,000 for that piece of crap and GM couldn’t see through that due to the fog of demand.
Which is really weird; whenever I’ve talked with the old school line workers here in Michigan who are familiar with Saturn, they’ve talked about how different the quality systems were and how it was so much more advanced at the time than the other GM facilities.
Have to wonder what the real underlying problem was with the brand.
Perhaps he’s confusing reasonable cost with quality. I am the happy owner of a 1992 Saturn. In all these years I have had two problems, the most recent the alternator. It’s a good solid car, and it would look like new if I washed it.