If GM coughs, country still knows to worry


November 04, 1990|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- "For years," said Charles ("Engine Charlie") Wilson to a Senate Committee in 1952, "I thought what was good for the country was good for General Motors, and vice versa."

The comment became an instant cliche, with at least enough feeling of truth that it has endured long after Mr. Wilson, a former defense secretary and GM president, has been forgotten.

Whether it is still true today once again has become an issue as General Motors and the other two major domestically based automobile manufacturers shudder through troubled times.

Last Wednesday, GM -- "The General," as it is sometimes referred to by its suppliers, or "the corporation," as it is religiously referred to by its employees -- declared a massive $2.1 billion write-down to close down plants and said it would make broad cuts in production elsewhere.

The announcements punctuated a tough week for the industry, with Chrysler reporting a third-quarter loss of $214 million, compared with a $331 million profit the year before, and Ford a 79 percent decline in third-quarter earnings, to $102 million.

Some of the red ink was merely the flip side of the accounting games that had obscured problems in the past. Chrysler's third-quarter results last year were inflated by a $309 million gain from the sale of shares in Mitsubishi.

More important, the multibillion-dollar write-off by GM covers plants that have long been inoperative and additional closing-related costs that will be incurred over the next two to three years. An argument could be made that those costs should have been, and should be, reported as they occur.

As a result, last week's write-offs and losses may be more disconcerting because of what they say about the long-term troubles of a major industry than for their immediate impact on U.S. prosperity.

But that, too, is likely to be the case, although the cause is more likely to be production adjustments that don't carry a clearly discernible price tag. General Motors indicated that orders from dealers were disappointing and that fleet sales in recent quarters may come back through resales of those automobiles to depress demand in the short term. In response, production will slow to match demand.

The same scenario is true for Ford.

Production cuts by the major manufacturers should cut 0.75 to 1 percentage points off the real gross national product in the fourth quarter, said Cary Leahey, director of economic forecasting at General Motors.

Such a big near-term impact on domestic activity is not unprecedented. Mr. Leahey estimates that the automobile industry can add 1 percentage point to the real gross national product during good times and that it can subtract 2 percentage points or more during bad times.

"It means a hell of a lot," said Mr. Leahey. But to put it into perspective, he added, "clearly the auto industry isn't what it was" in its impact on the economy.

Back in 1956, a good but not extraordinary year not long after Mr. Wilson made his famous comment, auto manufacturers employed 1.4 percent of the population, according to Commerce Department statistics. Last year, it employed 0.7 percent.

Similarly, in 1956 the auto companies paid 1.9 percent of the nation's wages and salaries; last year they paid only 1.2 percent.

Part of the decline is the result of efficiency; another is the result of imports -- about 8 percent of domestic sales are manufactured abroad. The overall unit volume of car sales hasn't grown in decades, although it can bounce dramatically from one year to the next, so one company's gain becomes another's loss.

Despite the industry's diminishing impact as a producer, automobiles remain a massive sponge for consumer dollars. In 1956 the Commerce Department estimated they soaked up 5 percent of personal consumption expenditures; last year, they accounted for 6.8 percent.

And, because the automobile industry is the final stop for so many products, statistics alone probably fail to capture its impact. A car contains rubber, textiles, computers, radios, glass and steel. Cars have more parts today than they did years ago, and the impact of the industry therefore extends almost everywhere.

Edward Sullivan, an automotive economist with the WEFA Group, reckons that about 2.5 million people contribute to the production of vehicles. That's a little more than triple the number of people listed in government statistics as working in the auto industry.

Some of the economic consequences of the travails suffered by domestically based manufacturers have been offset by the foreign manufacturers who have been so successful at taking away their customers. The success of Japanese manufacturers is hardly unknown. Recently, their market share has approached 30 percent.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.