By Don Shilling
A shutdown of Lordstown would compare to the steel mill closings, a professor says.
General Motors is running low on cash, and that has local business leaders worried.
“We’re concerned about it,” said Doug McKay, chief executive and chairman of Home Savings and Loan Co. “Many of our customers are dependent on GM, either directly or indirectly.”
The auto industry has been debating the possibility of a GM bankruptcy since the automaker announced Friday that it would be low on cash in early 2009, if not late this year. GM has said it needs between $11 billion and $14 billion to run its daily operations, but its cash reserves declined by $6.9 billion in third quarter to $16.2 billion.
Should economic conditions lead to a bankruptcy or a shutdown that impacts GM’s Lordstown complex, the effects would be felt throughout the Mahoning Valley, said Tom Humphries, president of the Regional Chamber.
“I’m very concerned for the Valley,” he said.
John Russo, coordinator of the labor studies program at Youngstown State University, said the economic impact of the Lordstown assembly and fabricating plants extends far beyond the nearly 5,000 workers there. The complex has hundreds of suppliers, many of which are located nearby.
The chamber estimates that GM plant creates 1.5 additional jobs for each plant worker, which makes more than 12,500 jobs. The payroll for all of the jobs is estimated at $474 million.
Also, many of the area’s retailers and service businesses are supported by spending from these workers, Russo said.
“A shutdown of Lordstown would be another major blow to our regional economy, not unlike the shutdown of Youngstown Sheet & Tube and U.S. Steel in the late 1970s,” Russo said.
The Center for Automotive Research in Ann Arbor, Mich., issued a study last week that said a failure by a major U.S. automaker in 2009 would eliminate 2.5 million jobs nationwide, including 1.4 million people in industries not directly tied to manufacturing.
Those disruptions would cost $125.1 billion in lost personal income in the first year, and $275.7 billion over three years, the study concluded.
GM, however, is dismissing bankruptcy talk. Rick Wagoner, GM chairman and chief executive, said Friday that it wasn’t being considered because executives think “the consequences of bankruptcy would be dire.”
Even so, GM and other automakers are insisting that they need immediate help from Congress. The automakers are seeking $25 billion in loans to keep the companies operating and a separate $25 billion to help cover future health care obligations for retirees and their dependents.
No one is sure what would happen if GM did resort to bankruptcy, which can allow companies to restructure by voiding union and supplier contracts.
Russo said he would be concerned that GM would follow the example of Delphi Corp., the auto parts supplier that filed for bankruptcy in 2005. It shut down most of its North American operations to focus on its profitable overseas divisions.
Delphi’s hourly employment in the Mahoning Valley has fallen from 3,800 to 750.
John Wolkonowicz, an analyst with Global Insight Inc. in Lexington, Mass, said a GM bankruptcy would disrupt the economy but could benefit the company in the long run. GM could pare down models, brands and dealers, then move remaining production to non-union plants in Mexico, he said.
Humphries said, however, that doesn’t think GM would automatically walk away from Lordstown in a bankruptcy. The company was confident enough in Lordstown that it recently announced it as the production site for the Chevrolet Cruze, and local union leaders and management have worked hard to make the complex competitive, he said.
Humphries said he isn’t sure how Congress should respond to the automakers. Federal investments were approved for Wall Street investment banks and then other banks, and now the automakers want federal assistance.
“Where does it stop?” Humphries asked.
He noted that congressional representatives from non-automotive states are questioning why workers in their states are financing a bailout of automakers.
Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich., said much of the nation is against helping the automakers because their wages are higher than the average manufacturing wage.
He said he thinks both the United Auto Workers and management will have to agree to wage and benefit concessions to get the deal through Congress. Longtime UAW workers are paid $29 an hour, while new workers in non-assembly line jobs are making half of that under a labor contract approved last year.
McKay from Home Savings said he generally supports free-market principles but added that he could not support the federal investment in banks without supporting the loans to GM. He said the loans can benefit the government if they are structured to be temporary and allow the government to make money when the loans are repaid.