DOWNSTREAM EFFECTS OF AUTO BANKRUPTCIES II – SPRING HILL, TENNESSEE

The news since May 1, 2009.

GM is closing 11 plants, “idling” 3 more, and closing 3 parts distribution facilities.

Fiat/Chrysler is probably closing plants, but there is no official word yet.

GM will layoff 21,000 (more) employees.

Fiat/Chrysler will layoff more employees, but we don’t know how many yet.

GM will reportedly terminate somewhere between 2000 and 2600 dealerships. (They sent out notices to 1100 dealerships prior to filing Chapter 11 that they would not be renewed. The question is how many more.)

Chrysler (pre-Fiat) has already terminated 789 dealerships.

The terminated dealerships are reported to be the “weakest” dealerships with an average of 50 employees per dealership. (The reality seems to be that these are the low volume dealers. They may be profitable for the dealer, but they are less profitable for GM and Chrysler. The trend is toward the big, chain, mega-dealers out on the interstate. The small downtown dealers who have been in business for three generations are no longer required or desired.)

Estimated job losses for Chrysler dealerships: 40,000. Estimated job losses for GM dealerships: 100,000+/-. (My best guess is that these numbers are at least somewhat inflated. Some of these dealers sell other brands and will continue to sell those brands. Some do not sell other brands, but they will survive as used car lots and/or doing repair work. The “good” news is that instead of losing 140,000 jobs at dealerships, we will “only” lose somewhere between 70,000 and 100,000.)

The reported numbers are that since 2002, 300,000 jobs have been lost at companies that supply parts to the auto industry and that the number of suppliers has declined from 1900 to 1100. (Some of these ceased to exist due to mergers. Some just ceased to exist.) There are estimated to be approximately 300,000 jobs remaining in the direct chain to the auto manufacturers. Best guess? There will be additional mergers/consolidations in the supplier industry. There will be additional bankruptcies by the weakest links.

Economists talk about the “multiplier effect”. In good times, each new job in the auto industry creates (up to) ten more jobs because of jobs for suppliers, jobs for delivery companies, jobs at restaurants, jobs at lube companies, the grocery store, etc…….) Unfortunately, (and economists are less happy to talk about this), the multiplier effect works on the downward spiral, too. For each job lost at GM or Chrysler, how many more jobs are lost? (Ten? Does the multiplier work in the same proportions on the downslope as on the upslope?)

Spring Hill, Tennessee is the home of the original Saturn plant which opened in 1990. Prior to the Saturn plant, the population of Spring Hill was approximately 1500. The current population is approximately 25,000. By far the largest employer in the area was the Saturn plant. (The plant was closed in 2007 to re-tool. It reopened in 2008 producing the Buick Lucerne.) GM has announced that this is one of the plants they are “idling.” (Idling is the industry term for a plant they are shutting down “temporarily” as opposed to a plant which they are shutting down permanently. Like forever.)

The Spring Hills plant employs 3000 people. They are all probably going to lose their jobs. (They will all be laid off this Fall assuming no white knight comes in and saves the day) That is more than 10% of the town’s population. Unemployed people wash their cars less often. They get their hair cut less often. They eat out less often. They don’t buy new cars. They don’t buy big screen TVs. They buy cheap domestic beer rather than the fancy imported stuff. They don’t take vacations. They don’t ……………..

If somebody doesn’t buy the plant, what happens? How do you sell your house? Who is going to buy it? The answer is: nobody. Prices will drop. Anybody who has a home will walk away and/or move away. Nobody will move in to replace them. I don’t know the specifics in this case, but in many of these cases the big employer in town will pay a yearly payment “in lieu” of property taxes. I would guess that GM pays one or two or three million dollars in lieu of property taxes for the Spring Hill plant. That money won’t get paid anymore. What is the effect of this loss of tax revenue? (Not counting the drop in property tax revenues due to the decline in values for houses that nobody can sell.) City and county employees get laid off – police officers, teachers, park employees, the ladies at the counter where you pay your vehicle registration, the guys (no offense ladies) who pick up your trash, ……..

Unless some miracle happens, Spring Hill, Tennessee will lose most of its population in the next five years, and the people who are left will make significantly less money. Spring Hill may not become a ghost town, but there will be parts of town that will make you wonder.

This is their new reality.

Michael Baumer

Law Office of Michael Baumer

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by Michael Baumer