Mich. worries automaker meltdown could doom state

November 20, 2008 7:18:41 AM PST
A quarter-century ago, Michigan's monthly unemployment rate hit 17 percent and so many laid-off workers left the state that bumper stickers asked, "Will the last one leaving Michigan please turn out the lights?" Fears of a replay now have residents feeling even gloomier in this hard-hit industrial state where the Detroit Three are headquartered.

Executives with General Motors Corp., Ford Motor Co. and Chrysler LLC have so far been unable to persuade Congress to provide billions of dollars in loans to keep them afloat.

Even if they get federal help, domestic automakers likely will shrink further, something Michigan has had to deal with for years.

Since 2000, the number of Michigan workers making transportation equipment has dropped from 342,000 to 175,000, a decrease of nearly 50 percent.

"Michigan has been bearing the brunt of these adjustments for eight years now. Unfortunately for the state, things are going from bad to worse now, because the financial woes are being laid over the structural changes," said Thomas Klier, senior economist with the Federal Reserve Bank in Chicago. "So it's a real double whammy."

Oakland County Executive L. Brooks Patterson said communities and schools would be devastated without the automakers. The county northwest of Detroit - one of the nation's most affluent - is home to Chrysler's sprawling headquarters, a GM campus and a slew of auto plants and suppliers that employ more than 40,000 people.

"If GM or Chrysler goes under, or both go under," Patterson predicted, "it will be a nuclear winter. We'll lose tens of thousands of jobs."

The state already is in the top 10 for home foreclosures and suffering from bad publicity with its largest city, Detroit, embroiled in sex and spending scandals.

Any reduction in auto industry jobs and profits means less tax revenue for state and local governments and more demand for health care and welfare services.

That's why Patterson and the mayors of several Michigan cities went in Washington to lobby for the loans. More than 240 Michigan communities benefit from an auto-related facility within their borders.

The mayor of Hamtramck, Karen Majewski, said the GM and American Axle plants at least partially within the Detroit enclave contribute more than a third of her city's annual budget, critical to the city's way of life.

"There's really, really no way to cut. If we expect people to live in a community with decent services, we cannot provide it if we lose this revenue," she said.

So far, even with October's unemployment rate surging to 9.3 percent and the state having the unfortunate distinction of having led the nation for the last two years in annual unemployment, Michigan isn't nearly as bad off as it was in the early 1980s. Back then, state unemployment nearly doubled from an annual rate of 7.9 percent in 1979 to 15.6 percent in 1982.

Teachers and government workers were laid off as revenues fell, services were cut and many residents packed up and headed to Texas or other states where the recession's effect on the auto industry was less severe.

Jay Wortley, senior economist for the nonpartisan Senate Fiscal Agency, said the key to Michigan's survival is for automakers to sell cars.

That could be hard to do at a time when economists are expecting motor vehicle sales to drop this year to around 13 million from 16.1 million a year ago, and when the domestic automakers are barely clinging to half the market, down from nearly 73 percent in 1996.

Decades of effort - and the need for downsizing - have made Michigan slightly less dependent on the auto industry. Even though it still accounts for a big share of Michigan's economy in revenues and wages, the domestic automakers make up a fraction of the Michigan work force - just 3.6 percent of total payroll employment of 4.1 million, according to Wortley.

That has come about even as domestic automakers become more concentrated in the Midwest, primarily in Michigan. The Detroit Three have shut down plants further away and foreign automakers and suppliers have set up headquarters and research-and-development centers here.

Former Michigan Gov. James Blanchard, who took office in 1983 during the last major automaker downturn, said the state faces an "economic tsunami" if a domestic automaker crashes.

"Whatever criticisms we have of management, that's no help to the workers and communities that will suffer if automakers go down," he said. "They don't need a bunch of lectures. They need help."

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Associated Press writer Ken Thomas in Washington, D.C., contributed to this story.

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On the Net:

Senate Fiscal Agency: http://www.senate.michigan.gov/sfa


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