Gradual meltdown

Experts, employees ponder future of General Motors and nation's current economic crisis

By Jeff Kanan (Last updated: 11/13/08 11:16pm)

As Michigan’s economy falters toward disaster, policy-makers are working to both stabilize the auto industry and reduce the state’s dependence on it. “Michigan’s economy is, as currently structured, totally driven by the auto industry,” said Donald Grimes, senior research specialist at the Institute for Research on Labor, Employment and the Economy at the University of Michigan. “We can create jobs in health care, technology and other industries, but nothing else can come close to the auto industry.”

Detroit’s Big Three automakers were denied a place in the government’s $700 billion financial rescue program Nov. 3, but current legislation regarding a $25 billion relief package is still being decided.

General Motors Corp. celebrated its 100th anniversary in September with falling stocks, declining credit and very little wiggle room as it faces an economic disaster.

This is the reality for the nation’s largest automaker, which on Nov. 7 reported losses of $4.2 billion for the third quarter of 2008 on an adjusted basis, and now stands on the verge of running out of money.

Projections show the automaker will fall short of readily available assets by the first or second quarter of 2009 unless GM receives federal help or the economy drastically changes direction.

“It’s pretty certain they’ll hit the bottom, without a change by early 2009,” said Debbie Maranger Menk, a project manager with the Center for Automotive Research. “Their burn rate is pretty high. … They will not be able to produce costs or fund operations.”

Local impact

The most recent layoff announcements include two Lansing-area plants, the Lansing Grand River and the Lansing Delta Township assemblies, which likely will cut about 700 jobs, said Heidi Magyar, GM communications manager for the Lansing region.

“Right now the U.S. auto industry has been hit hard by the credit crisis,” Magyar said. “I think the whole market has been changing quickly, but we’ve been working hard on most of these changes.”

The Lansing Grand River assembly plant houses production of the Cadillac CTS, STS and SRX, and the Delta Township location is where production of the Buick Enclave, GMC Acadia and Saturn Outlook take place.

Cuts are expected to happen early next year.

“I would characterize the workplace as anxious, frustrated and scared,” said Brian Fredline, president of the UAW Local 602, which represents the Lansing Delta Township location.

Fredline said he’s concerned about future progress with the number of expected layoffs and the fact that production lines will slow down beginning next year.

The number of cuts at the Local 602 will involve fewer than 500 people, but the exact number will depend on how much slower the production lines run as the union will be building fewer cars per hour, Fredline said.

Laid off workers will receive state unemployment benefits, possible food, heating and career change assistance, as well as supplemental unemployment benefits if they’re senior GM employees.

Despite the current fix, Fredline said he sees a future for GM if it can stabilize in the coming months.

“I know GM has some great new green products for late 2009 and early 2010, so we’re confident we can get there,” Fredline said.

Students like social relations and policy sophomore Matt Mamo, whose dad works at a GM facility in Milford, said they’re somewhat concerned about their parents’ positions at GM, but it doesn’t weigh on them.

“It concerns me a little bit … GM might have to cut back, but it’s not going to go under,” Mamo said.

The father of Mamo’s roommate also works for GM, and Mamo said GM’s struggles are occasionally a subject of household discussion.

Michigan’s next move

More than 13 million jobs nationally are tied to domestic automakers, Detroit Regional Chamber spokesperson Jonathan Kreger said. In 2006, 0.7 percent of the national economy was caught up in the auto industry, according to the most recent data from the U.S Bureau of Economic Analysis.

In Michigan, years of dependence on the auto industry have made the car companies a quintessential component of the state’s economy, Grimes said.

With the automobile companies approaching a state of crisis, Grimes said, industries kickstarted by research conducted at MSU, U-M and Wayne State could lead an economic resurgence in the state.

“The most prominent sector that could lead the road to recovery is the high-knowledge industries that come from research being done at our research universities,” Grimes said. “That can generate new industries in the private sector.”

Water, life sciences and health care are other industries that could step up and lead Michigan’s economic future.

“A second source of growth is the Great Lakes, and we need to enhance that resource,” Grimes said. “There’s a lot more industry built around water.”

Although the auto industry’s struggling and likely to undergo permanent change, economists said recovery and re-emergence as keys to Michigan’s economic future aren’t out of the question.

A different operating structure will await the auto companies at the other side of the financial crisis as the automakers move to compete in a growing global marketplace, Maranger Menk said.

“They’ll be different by design, since they’ll have to model for the whole world,” she said. “I think they can be fit, strong and healthy competitors, but they won’t dominate.”

Federal aid

The nation’s credit crisis can be viewed as the underlying reason for current economic struggles, although the automakers’ dilemmas started long ago, Grimes said.

“It’s been coming for a long time as market shares have dropped and there’s been a shift from trucks to cars,” Grimes said. “The crisis has been brewing for a long time, but the credit crisis brought it to a head in an intense fashion.”

The decision on a federal plan to provide Detroit’s Big Three automakers with $25 billion in emergency relief could come as early as Thursday.

Automakers could benefit from increased spending cash, but opponents claim there’s no guarantee the money will help reboot the industry.

“We support a strong response from Congress and go a step farther to support an additional $25 billion in funding,” Kreger said. “Automakers are facing unprecedented circumstances, and we do think some funds are needed.”

The nature of the response will go a long way in determining how long Detroit’s automakers will survive, Grimes said.

“We need an increase in the sale of motor vehicles, so if it’s directed at consumer demand, then the Big Three will be in a shrunken state of surviving,” Grimes said. “Just giving them cash would allow them to survive for a few months, but the same problems would reappear.”

Regardless of whether the legislation passes, Detroit automakers are in for a rough winter as they cope with losing remaining cash.

“In my opinion, I don’t think there’ll be a quick turnaround in 2009,” Maranger Menk said. “I’m not expecting it.”

Originally Published: 11/13/08 11:07pm