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DOING THE MATH - WHO'S CHICKEN IN THE CASE OF THIS EGG?


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    • by Rick Carlton - The Auto Channel

    According to a senior socioeconomist at Boston College, the employment impact of a failure of all three US auto-makers will be less than originally suggested. John Havers, Senior Associate Director of the Center on Wealth and Philanthropy says that Bureau of Labor Statistics (BLS) conclude that, "...about 1 in 10 jobs -- or 10 percent of the full-time civilian labor force -- will be lost if the big three go into bankruptcy...at the end of November 2008 the Bureau of Labor Statistics indicates there were 144.2 million employed persons in the civilian labor force: 26.2 million were part time workers, leaving 118.0 million full-time workers. A loss of 10 percent, therefore, would eliminate some 12 million full-time jobs.

    This implication is inappropriate, unless one counts every job that is associated, however remotely, with automobile manufacturing, even if that association is limited to just a few hours of work per year. In fact, the maximum impact if the entire automobile industry in the US were to shut down completely and permanently would be 190,000 jobs in auto manufacturing and 540,000 other jobs throughout the economy. And only about 60 percent of this number would be affected were the big three to shut down."

    "Inappropriate?" Well, speaking operationally, let's forget the Automotive Restructuring Bill, and we can all go home - right?

    I have great respect for academics, but to borrow a homily from Civil War author Shelby Foote, Mr. Havers' conclusions, along with those naysayers in the U.S. Senate, "just won't scour." Doing math for math's sake, is rarely an accurate measure when looking at overall negative industry momentum. Granted, Mr. Havers is basing his reduced numbers on an assumed three-company "bankruptcy," but a more practical analysis should be based on the potential of a three-way collapse.

    The core of the current trouble hinges on a dearth of operating liquidity, while the companies have been trying to respond to significant global sales reductions, and accommodating the need to move their companies to next-gen business models. Those operating challenges are big enough to swallow, but that's not all. According to a model released by the Argonne Laboratory For Transportation Research, per unit costs for automotive manufacturing have spiraled upward, while profit margins have become non-existent.

    Based on the Argonne model, (reflected as percentiles of operational cost leading to an ultimate MSRP): Vehicle Manufacturing - 50.0%, Production Overhead - 17.0%, Corporate Overhead - 7.0%, Fixed Costs - 26.0%, Selling - 23.5%, Sum of Costs - 97.5%, Profit - 2.5% = MSRP. Now, I don't know how a highly technical company is supposed to make money on a typical day, but if one suddenly finds oneself faced with having to prop up one's day-to-day operating cash, things can get really bad in a hurry. To illustrate the point, according to statistics provided by GM, Ford and Chrysler the aggregate total of all direct employees is currently 403,719. Therefore, considering only those employees, Mr. Havers numbers are already a bit skewed to say the least. Can our current economy absorb an additional 400,000 KIA's and survive? I think not.

    Furthermore, there are a host of practical and interrelated issues beyond a "simple Big Three" failure to consider. These include downstream workforce contractions related to region/local authorized and/or private dealers, authorized/aftermarket parts vendors, and major/sub-assembly manufacturers. So, in a worst case scenario (and given the current circumstances), the final KIA counts could be well beyond the original BLS estimates, if our statisticians, and our representatives do not behave more forthrightly.