The first part that doesn’t compute is $700 billion in giveaways plus $100 billion in pork in 5 days compared to $25 billion in loans—no, make that just $14 billion—but two weeks later, still no deal. What’s up with that? No detailed plan, no wailing or gnashing of teeth. Just $800 billion plus in 5 business days for the financial industry. For the automakers? Nada.
So, let’s think about this. Treasury Secretary Paulsen has near absolute control over the $700 billion. AIG has been at the trough, despite their largesse. Citigroup, which recently won contracts for government credit card services for travel and fuel, has doubled their initial bailout grant with a follow-up visit. So far, the economy has seen jack-nothing from the Wall Street bailout while financial executives are slated to get bonuses. What’s up with that? At least AIG hasn’t visited a spa or some other resort within the last couple weeks. Has anyone asked these guys for a detailed plan? Do they have one, besides continuing to stuff money in their personal pockets?
Ok, everyone wants to blame the automakers for taking corporate jets to Washington the first time around. Bad PR, no doubt, but they’re no different than any other large corporation. And consider that Ford and GM are getting out of corporate jets while Citigroup is selling 2 of several. Am I missing the outrage here, or is it possible there’s a bias at work?
But I digress. In the interests of full disclosure, as regular readers will know, I live in the metro Detroit area. I have, but don’t presently, worked for suppliers to the Big 3. Talking about the US automakers is talking about my friends and neighbors. It seems, however, everyone thinks it’s just Detroit we’re talking about. A visit to Chrysler LLC’s website shows the company claims 100,000 employees in all 50 states. It’s not clear if that includes their dealer network, but I suspect it must, since the last DaimlerChrylser annual report put Chrylser group employment at about 86,000.
There’s been a lot of speculation and commentary that Chrysler is the least viable of the Big 3. If that’s the case, I’d blame it on 3 or 4 Jeep-brand models that appear to be competing against one another. What’s the difference between a Compass and a Patriot? Never mind the obvious Dodge badging of a Jeep model. Let’s consider, however, if Chrysler goes into bankruptcy.
Conservatively, figure they have to dump 25% as part of restructuring before emerging from bankruptcy protection. That’s one-quarter of their workforce: 34,000 people. That’s 6 or 7 of their 26 plants. That means at least at 25% reduction in supplier business. Never mind the collateral damage to the Mom & Pops that exist because of automaker and supplier plants, from the 7-11s (you thought they were corporate owned?) to gas stations to the donut shop.
Not counting the shirttail hangers, a Chrysler bankruptcy having a one-quarter impact means 34,000 direct employees out of work. Chrysler has plants in 15 states, with an average maximum unemployment benefit of $373 per week. Could you get by on $373 per week? That’s gross, before taxes. $19,396 per year, except standard unemployment is limited to 26 weeks, with a 13 week extension and another 7 week emergency benefit under certain circumstances. Seems we’re under those circumstances, so figure 46 weeks of benefits: $17,158 for the year. And, if you get a job as a Wal-Mart greater at minimum wage or so, deduct that from your unemployment.
Obviously, $17k is a far cry from $83k, based on $40 per hour x 2,080 hours per year. (No, auto workers don’t really make $73 per hour, but neither do the “transplants” bear the burden of those legacy costs.) If we assume a 25% ripple effect through the suppliers and the ancillary businesses, from the roach coaches to the uniform folks to the corner gas station, we’re looking at some $7.2 billion for the first year for Chrysler alone, assuming they keep 75% of their employees and plants working. That’s after the some thousand or so recent white-collar worker early buyout.
So, what’s the cost to the taxpayer? Well, every state has different unemployment rates. For the 16 Chrysler plant states, it varies from a weekly rate of $255 to $628, with a mean of $373. For purposes of this scenario, I weighted Michigan, Ohio, New York, and California, based on numbers of plants in those states. This gave me a composite weekly unemployment benefit of $583. If Chrysler dumps 1/4 of its 100,000 workers in a bankruptcy restructuring, the cost is just under a billion at $911.3 million. When you add in lost taxes and Medicaid and food stamp costs, this mushrooms to $1.78 billion for the first year alone.
Now consider the suppliers and ancillary jobs and businesses. Some of these also supply the transplants which everyone seems to think are so much more efficient than the Big 3. Jim Gillette of CSM Worldwide estimated suppliers could lose 100,000 jobs in the next 2 years. From this estimate, based on a Chrysler failure, unemployment, Medicaid, and other direct taxpayer costs jump to about $7.2 billion in the first year. This is all before adding in the ripple effect of people who used to be able to pay their mortgages, but can’t now. How will the banks, Fannie Mae, and Freddie Mac deal with that prospect?
Far more jobs are at risk with the automotive sector than the financial sector. The US Bureau of Labor Statistics puts the ratio at about 1.6:1, automotive to financial workers. So why, then, do we give 28 times (50 times, based on $14 billion vs. $25 billion) to the bankers, who continue to take extravagant trips and claim bonuses, compared to the US auto industry? Auto workers and associated trades account for about 3 million jobs. Automakers’ executives have agreed to salary cuts and bonus restrictions. Did AIG? Citigroup? Oh, yeah. Hard to sign papers when you’re in the spa.