By Mike Smith
Senior Fellow
As someone who has studied the automotive industry and labor in Detroit for many years, Bankole Thompson, editor-in-chief of The PuLSE Institute asked me for an opinion on the recent turmoil in the automotive industry.
Will pending layoffs that General Motors CEO Mary Barra revealed recently result in increased poverty? This is a complicated question because one has to consider the ramifications of the layoffs in a long-term context. There are a number of factors to consider. But, the brief answer might be, yes, there will likely be some increased poverty, especially, in terms of an increase number of working poor.
The recent history of the auto industry is very telling, and one can understand that Ford, General Motors and Fiat Chrysler – the latter two global companies suffered through bankruptcies in 2009 – need to plan for the future. Per a recent Crain’s Detroit Business report, the global automotive industry is slowing down, sales of cars and trucks have steadily dropped, and the industry may already be in the early stages of a recession.
The companies also have to invest in new technologies for mobility and vehicle electrification. – I do say, “have to” since they need to compete to stay alive. Yes, the companies make billions in profits, to say nothing of millions in salaries for top executives. But, to compete, I do understand that they also must spend billions for research and technology advances. Just think of the poverty we would see if the car companies failed.
The American public is also fickle. At this moment, gas is cheap and buyers want SUVs and small trucks. All highly profitable, of course, and GM, Ford and FCA have pretty much abandoned car production to Mexico and other places where labor is cheap and labor laws are virtually non-existent.
This results, for one example, in layoffs at GM factories that assemble cars like Detroit’s Hamtramck Plant, and in Oshawa, Ontario, and Youngstown, Ohio. Indeed, some factories may not get new products to build and will be closed permanently. However, if gas prices rise, overnight, American buyers will want small cars and not trucks and SUVs, there will likely be more layoffs.
The history of the global auto industry is that it feels a recession first, long before other sectors of the economy for one simple reason: one of the first purchases a family will deny themselves when their budget tightens is a new car.
All of the above, however, is a brief assessment of the macroeconomics of the auto industry. What about the microeconomics? The actual circumstances of those working in the auto industry? This is where we are likely to add to the ranks of the working poor.
First, it has to be understood that, for working people, one of the best jobs to hold are those in an automobile or truck assembly plant. These are the best paying jobs with the best benefits in American manufacturing, and they are jobs that do require some skill, but do not require a formal education.
Moreover, when a worker loses one of these jobs, unlike it was for most of the Twentieth-Century, these workers are not likely to find an available job with commensurate pay and benefits. Sure, GM says it will offer jobs at other assembly plants for 2,700 workers, but these folks will have to uproot their homes and children, leave their friends and community, and move to another part of the country. Many others will not even have that option.
They may not be able to maintain house payments and car payments (note that a recent Harvard study demonstrates that housing costs are rising much faster than wages and salaries), let alone health care or college tuition for their kids (note the constant attacks on Obama Care from the right with no alternatives for affordable health care offered). Maybe a good share of these workers will, however, find good jobs. Recent history, however, tells us that the odds are against a significant portion of laid-off autoworkers finding jobs that will sustain them the middle-class.
One must also consider that the closing of an assembly plant or the mass layoff of workers do not simply affect those who lost their jobs. Many studies over the past years by historians and sociologists uniformly show that when a concentration of good paying jobs is lost, this affects local store sales, gasoline station sales, community and school revenues, and many other sectors of the local economy tied to supporting workers and their families. When good jobs are lost, one might also consider what legendary United Automobile Workers President Walter Reuther observed: “who will buy the cars?”
In the end, therefore, unless something dramatic occurs, like GM or Ford radically altering their future plans, or the federal and state governments developing policies and incentives for affordable health care, as well as job retraining programs and an enhance emphasis on education for the 21st century, there will be an increase in the number of working poor and just plain poor folks. Wouldn’t it be nice if both the car companies and our governments planned a few years ahead instead of just reacting to an economic crisis? In the meantime, let’s wish the best of luck to laid-off autoworkers. They’ll need it.
Mike Smith, a noted historian is a Senior Fellow at The PuLSE Institute, where he focuses on labor and economics. He is the Johanna Meijer Magoon Principal Archivist at the University of Michigan Bentley Historical Library.
