JUDY WOODRUFF: So what do closed dealerships and shuttered plants mean for the overall economy, and who is affected? For that, we turn to Mark Zandi, chief economist at Moody’s Economy.com; and Donald Grimes, an economist at the University of Michigan’s Institute for Research on Labor, Employment and the Economy.
Gentlemen, thank you both.
We heard from some auto dealers. We heard from a GM retiree. We heard from a bondholder, Mark Zandi, a woman who, with her husband, was invested in GM, but broaden the picture out. How do you see this affecting the entire economy?
MARK ZANDI, chief economist, Moody’s Economy.com: Well, I think it’s very significant. You know, I think it’s fair to say that the recession — the current recession that we’re in will be longer because of GM and Chrysler’s problems and the auto industry’s problems broadly.
And when the economy does begin to recover, that recovery will be measurably weaker than it otherwise would have been. In past economic recoveries, out of every other recession that we’ve been in since at least World War II, the auto industry played a key role in that recovery, creating jobs and income and wealth for our economy, but that clearly will not be the case coming out of this recession. And, thus, the recovery will be measurably weaker.
JUDY WOODRUFF: Don Grimes, can you quantify that in terms of how many jobs are going to be lost more broadly in the economy, and who is going to lose those jobs?
DONALD GRIMES, Institute of Labor and Industrial Relations: Well, a lot of the jobs have already been lost. The basic problem is that car sales have collapsed. We’re selling at a 9 million to 10 million unit annual rate, whereas we were selling at a 16 million, 17 million unit annual rate a year-and-a-half ago.
So a lot of these jobs have already been eliminated. We are going to continue to lose a few more jobs going forward. I think we’ll find out more on Friday, but I think we’ll be looking in the 500,000 unit job loss at that time.
Overall, will a GM bankruptcy matter? Yes, but it’s really more of a function of the collapse in car sales than it is a cause of all these job losses. The GM bankruptcy is a result of a drop in car sales.
JUDY WOODRUFF: And, Mark Zandi, but help us understand who else is affected. We know it’s the car dealers; we know it’s people who work at General Motors. What about the suppliers, the people whose businesses depend on the folks who work at these automakers?
MARK ZANDI: Right. Well, you know, the auto industry has its fingers deep into our economy. In fact, there’s no other industry where, if you lose a job in that industry, it has bigger impacts throughout the rest of our economy, and it’s not only the loss of jobs at those automakers, but it is the dealers, it is the suppliers, it is — because you lose a lot of income and wealth in those — in the lost jobs in those industries, they can’t go out and spend, so that causes jobs in retailing and in different kinds of services to lose jobs.
So just to give you a number, for every lost job at an auto assembler like GM and Chrysler, you lose as many as 10 other jobs in the rest of the economy, so that so-called multiplier is very, very large and very significant.
Auto industry has shrunk
JUDY WOODRUFF: And yet, Don Grimes, the auto industry is a much smaller part overall of the American economy than it used to be, is that not right? I saw, what, the number today, 2 percent of the overall gross domestic product.
DONALD GRIMES: Yes, it's shrunk significantly, especially over the last couple of years. But the one thing that we haven't mentioned and the one thing we need to avoid -- and the reason why President Obama and the administration is funding General Motors now, to the tune of $50 billion -- is we need to avoid the liquidation of General Motors, the movement from a Chapter 11 bankruptcy to a Chapter 7 bankruptcy.
And so what we need to do is we need to give the company time to restructure, the time to get smaller so that their production capacity and including the dealerships match up with their sales.
And that's a great tragedy that all those jobs are being lost and all those family-owned dealerships that go back generations are being closed, but, unfortunately, it reflects the fact that General Motors and Chrysler and even Ford, to some extent, are selling a lot fewer cars.
And the most important thing to keep everybody's eye on the ball is that we avoid the Chapter 7, the liquidation of General Motors, which would come about if they would cut off of funding or if people really stopped buying their cars completely now.
A lot of people may be afraid to buy General Motors cars or Chrysler cars because they're in bankruptcy, but the federal government has guaranteed the warranties on those cars. People should not be afraid to buy the car because of a fear that their warranty won't be any good. And there will be some very, very good deals.
JUDY WOODRUFF: Let me just stop you there and come back to that original point you made and ask Mark Zandi, what about it? What if the government had said, "We're not going to get involved. Just go ahead and liquidate. Let nature take its course"? There are a lot of critics out there right now saying the government shouldn't have done this.
MARK ZANDI: I don't agree. I think that would have been a mistake, because I think, as Don points out, that if the government didn't provide that support, GM and Chrysler would go into bankruptcy, but it would be a liquidation, and it would be a complete mess, and it would cost the economy many, many more jobs, and, of course, the economy's flat on its back already, and it ultimately would cost taxpayers more, because the economy would be smaller and we wouldn't generate as much tax revenue.
So I think, at the end of the day, certainly this was costly. It's certainly not anything anybody would want to do. And it is costing taxpayers a lot, but the cost of not doing anything would have been measurably greater.
Recovering lost jobs
JUDY WOODRUFF: But is there any sort of guarantee, Don Grimes, given the way the government has had to step in as it is, poured $50 billion into GM, that these jobs will come back in one form or another that are lost across the economy, and when they will come back, if they will?
DONALD GRIMES: Well, we've always had an economy that's gone into recessions, and we've always come out, and we've always ended up creating more jobs during that economic recovery phase than we've lost.
That's been the history of the United States going back 200 years and around the world, so I have no doubt that eventually we will get out of this recession, that we will regain some of the jobs, but they'll probably not be in the auto industry. They'll be in other industries and other fields.
And it's going to be a very painful and, as Mark said, a very slow recovery in terms of those jobs, but we will get out of this. People should be certain of that.
JUDY WOODRUFF: How can you be so certain, Mark Zandi?
MARK ZANDI: Well, you know, I think the reason is that the policy response to the entire crisis has been really quite impressive, very massive. It's not only the help to the automakers, but it's the help to the financial system. It's the fiscal stimulus. It's everything that the Federal Reserve Board is doing. It's the policy response overseas, in terms of monetary and fiscal stimulus.
If you take the totality of all the things that policymakers have done, it's really quite impressive. Now, one could argue about the merits of any individual aspect of the policy response -- maybe the stimulus was too big, wasn't big enough, maybe the auto bailout was a little large, we didn't do it quite right here or there -- but, taken together, it really is impressive, and it will win the day. And I think it will mean that this recession, which is now a year-and-a-half old, will be over by the end of the year.
Communities affected by closings
JUDY WOODRUFF: But, Don Grimes, I was listening to those auto dealers today in that Senate hearing, and they were making the case, in very plaintive terms, that their shutting down is going to affect their community across the board. They were supporting the Little League. They were giving money to the community in so many ways that are probably invisible to people sitting in Washington.
DONALD GRIMES: I think that's absolutely true. It's a great tragedy. And I don't -- I wish I could figure out a way that you could save a lot of those dealerships, but I don't necessarily think you can.
Unfortunately, there were a lot more dealerships. Think of it as like retail stores that were selling appliances. There were a lot of stores. Then, all of a sudden, there are a lot fewer appliances being sold, so there are going to be fewer stores that are going to sell those appliances.
And that's what you're really in a situation -- General Motors, Ford and Chrysler, their vehicle sales have dropped substantially over time. They will probably continue to drop in the future. They'll get a recovery -- a bounce out of the recession, but they'll probably continue to lose market share, and they'll need fewer dealers.
I think that Chrysler has -- average dealerships sold something like 3,000 -- I mean Toyota, about 3,000 vehicles. The average General Motors dealership sold something like 800 vehicles. That sort of a discrepancy undoubtedly adds to General Motors' cost.
JUDY WOODRUFF: And for the time being, though, Mark Zandi, people have to bear down, this is going to be with us for a while?
MARK ZANDI: Yes, that's absolutely true. We've got a lot more job losses to go, and a lot of it is related to the fact that the auto industry has got a lot of work to do and a lot of restructuring.
Just one other point. You know, take the last recession. In 2001, we had 9/11 and then the recession. That was September of '01. Two months later, it was over, and the reason it was over was because of G.M. and their 0 percent financing deals, which juiced up car sales and got us out of that recession and rolling again. And, obviously, GM can't do that this go-round.
JUDY WOODRUFF: We're going to leave it there. Mark Zandi, Don Grimes, thank you both.
MARK ZANDI: Thank you.
DONALD GRIMES: You're welcome.