Dissecting Unemployment – Auto-Style

I waltzed through the Los Angeles Auto Show with my wife, a young cousin and his friend on November 29; the place was packed. Gawkers – okay, I admit I was one – stared in envy at the Ferraris, the Aston Martins and a few of the exotics. They must be selling them, even though most of the scions of Wall Street aren’t buying such big ticket items these days. I wonder who still is; even the price of oil is down, so oil sheiks and barons have to reduce the number of supercars they buy these days – or do they just cut back on social programs for their “people?”

The Japanese automakers were expanding existing technologies and showing off new fuel efficient vehicles that remained relatively affordable in a down market. General Motors showed off its much touted Chevy Volt and paraded a fuel cell-powered car as a car of the future. They also showed how they were introducing hybrid technologies on lines of trucks, big SUVs and luxury Cadillacs, making gas guzzlers, well, slightly less “guzzly.” I’m even told GM engineers have some more pretty elegant solutions for the future. Why didn’t their bosses push these technologies earlier?

What was missing from the American carmakers, painfully obvious to anyone walking around this massive exhibit at the Los Angeles Convention Center, particularly at the GM section, was a tradition of energy efficient production cars. Even with prices at the pump the lowest they’ve been for a while, crowds around the tiny, fuel efficient urban mini-vehicles, the Smart Cars, exceeded anything around any General Motors product. I wondered about our reputation for engineering and invention; it didn’t make me feel particularly good. The Japanese carmakers have been selling these technologies for quite a few years now; Ford has a few in the market too, just not very many.

In a down market, inefficiencies and failed business plans fall first and fast. Detroit is a classic example of that phenomenon. I’ve already blogged about the 3-5 million jobs that could be lost if the American automotive industry collapsed, but today I’d like to focus on one part of that business that doesn’t have much control over Detroit’s failed choices – the dealers and their employees.

The November 30, 2008 New York Times noted: “The National Automobile Dealers Association predicts that roughly 900 of the nation’s 20,770 new-car dealers [have gone or] will go out of business this year, and automobile analysts say the number of failed dealerships could rise into the thousands next year.” GM’s U.S. dealers number 6,468 and falling. Folks can’t borrow money to buy cars that they don’t seem to want anyway. Projections suggest that once the November car sales are added to the mix, U.S. sales will have fallen for the year to 11 million cars, a drop of almost a third from last year – clearly the lowest in a quarter of a century.

We had a good black Friday, but the Times described idle car salesmen playing number games to pass the time. The underlying specifics they cited illustrate the magnitude of the problem: “The economic toll of a mass failure of dealerships around the country has already begun to harm the broader economy. In October alone, 20,000 employees of auto dealerships lost their jobs nationwide, more than half of those who were newly unemployed in the retail trade, according to the Labor Department… The auto dealers association estimates that new-car dealers produce a [direct] $54 billion annual payroll for 1.1 million workers and nearly 20 percent of the retail sales and sales taxes in small and large communities alike.”

So here’s the problem – all these folks’ jobs rest with a senior management that seems completely out-of-touch with America. Their best guess at what life is like for people who have lost or are worrying about losing a job is a computer-based statistical analysis. They believed they could keep making bigger and Americans would stupidly pay more for the pleasure. The unions’ complacency, their willingness to play ball in the mythical game of endless prosperity, didn’t make the fall any softer. Taxpayers are being asked by arrogant, overpaid, perk-invested CEOs to fund jobs for a lot of hardworking people who need the help and whose job loss would push our overall economic recovery back significantly.

Over the weekend, GM’s unions and board of directors had separate meetings to consider how to restructure the company for the near term. Both understand the need for significant cut-backs if Congress is ever going to take them seriously. Ford and Chrysler are offering different solutions for their issues as well. En route by car or commercial flights, CEOs from the big three American automakers will be providing their going-forward business plans for Congress to consider in connection with their funding requests. I sure hope we’ll see new models, a new wage and benefit package, a new executive pay/perk structure, a new business plan and… oh yes … at least for GM, new senior management.

I’m Peter Dekom, and I approve this message.