GM's Cutbacks Upset Michigan's Rattled Economy
State faces the prospect of lower tax revenues as carmaker downsizes. RIPPLE EFFECT
LOOMING cuts at General Motors Corporation are darkening the cloud over Michigan's economy.Skip to next paragraph
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The huge automaker intends to cut at least 74,000 jobs by 1995 and close 21 plants. Some analysts predict even deeper cutbacks. Michigan will bear the brunt of that reduction. GM is the state's largest employer.
"Future downsizing is sure to hit Michigan hard," writes Dan Luria, an analyst at the Industrial Technology Institute in Ann Arbor, Mich. He forecasts that GM will trim 106,000 US jobs by 1995. More than half of those - 65,000 - will come from Michigan, he suggests.
"That sounds to me on the heavy side," says Daniel Kruger, professor of industrial relations at Michigan State University. "I want to wait until the dust settles before making more precise estimates."
The dust may not settle for a while. On Monday, GM announced it will not redesign its A-Body platforms, represented by the Buick Century and the Oldsmobile Cutlass Ciera. Those mid-size models won't be produced after the 1996 model year.
This affects GM's Oklahoma City plant, not Michigan, but more such decisions may follow. The company wants to reduce the number of its car platforms from 20 to about seven.
The question for Michigan is not how many auto jobs it will lose, but what kind of jobs. The key is auto-assembly positions. Every assembly worker supports four other workers statewide, estimates George Erickcek, regional analyst for the W. E. Upjohn Institute for Employment Research. "That's extremely high." He says cuts in white-collar ranks would have less ripple effect on the state's economy.
GM is offering early retirement to salaried workers ages 52 to 61. It wants to eliminate 10,000 of its 81,000 white-collar work force, most of which is in Michigan.
THE company also wants to retire 21,200 hourly employees on layoff. Under the union contract, these workers get full pay and benefits even though they don't work. But the fund that pays these workers is running out. GM warned last week the idled workers could be cut off from the fund as early as January. GM is negotiating with the United Auto Workers to devise a solution.
On Tuesday, the company moved to raise much-needed cash, announcing a preferred-stock offering of up to $1 billion. Some analysts say the money will go to fund early retirement for blue-collar workers.
Michigan has seen massive layoffs before. During the 1980s, Ford and Chrysler as well as GM closed plants and cut their work forces. GM alone cut its Michigan work force by a third from 1979 to 1991.
The impact on state and local government could be huge. Michigan and Detroit have already struggled with budget deficits in recent years. Now, they face the prospect of lower tax revenues and higher demands on services as workers move off GM payrolls.
"We are really holding our breath," Professor Kruger says. "A critical question will be the age of the people who go." If they're close to retirement, the impact on the unemployment rolls will be less than if they're young workers, he says.
The Michigan economy survived the 1980s because small companies created new jobs and manufacturers outside of the auto industry nearly held their own, says John Jackson, professor of business administration at the University of Michigan. According to his study of Michigan companies, 209,000 of the 240,000 manufacturing jobs lost during the 1980s were auto-related.
The transition from a few big employers to many small ones is not smooth. There's greater dynamism but less job security, Professor Jackson says.
In the long run, Michigan may lose even more pure manufacturing jobs, says David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan. But it has the potential for creating another kind of center.
"Where is the intellectual center of the world's auto industry?" asks Dr. Cole, "Southeast Michigan. There's no single region that can compete.... What people are increasingly doing is moving intellectual capital here." That includes foreign companies such as Fiat, Isuzu, and Mitsubishi.