During the past 100 years, the state of Michigan has been dependent on the automobile industry for its economic backbone. As the Big Three automakers – General Motors, Ford and Chrysler – had their ups and downs, the economy of the state followed. And now, recent news of a prospective merger between General Motors and Chrysler has residents in the state feeling a little more than anxious.
The economic environment for the auto industry, or anyone else for that matter, is not healthy right now. Since 2005, the Big Three have cut approximately 100,000 jobs across the United States and have been forced to downsize. Chances are that a merger of the two companies would result in even more job cuts.
Michigan’s unemployment rate hovered around 8.9 percent during the month of August, and the state lost more jobs than any other in the country during the economically tragic month of September. The Wall Street Journal estimates that if the merger goes through, the unemployment rate in the state could hit double digits.
It is likely that almost half of Chrysler’s 66,000 employees who are not absorbed by GM will lose their jobs. And although it’s true that not all of those employees are in Michigan, quite a few of them are. By absorbing the other company, GM plans to shut down overlapping operations and thus save money on production. Along with factories, dealerships deemed unnecessary by the merger will also be closed, causing even more to lose their livelihood.
Some towns in Michigan have economies completely driven by factories that are run by automakers, or by other industries dependent on automakers. Remove those sources of income and those towns will become actual wastelands.
Detroit already has one of the highest foreclosure rates in the country. Michigan is ranked fourth in the United States for the number of home foreclosures, with 13,605 filed in the last month, again according to the Wall Street Journal. It is in no way possible for this number to improve with a merger on the horizon.
Both companies are currently floundering; Chrysler’s sales have dropped 25 percent in the last month, while GM’s have dropped 18 percent. As the economy tumbles, the two companies are also losing billions in market shares. And it is estimated that GM spends a billion dollars in cash each month, so it can be easily assumed so that the merger could help both the companies.
A private corporation owns Chrysler and their stores of money are much higher than those of GM. If they acquire Chrysler, then GM would be, in theory, sitting on a fat stack of cash.
The sad fact is that it won’t really work that way. It will probably put an end to Chrysler, as we know it, a car company that has been around for over 80 years. GM did much the same with Oldsmobile in 2000, a process that ended up costing them $2 billion dollars. Closing down a larger operation like Chrysler would cost GM a hefty penny from the money they might be gaining from the merger.
It seems to me that intensification of merger talks is a knee-jerk reaction to the more severe downturn that the economy has undergone. Talks have actually been going on for at least a month, but progressed much faster in the past week. I can’t see any way that this merger will benefit the people of Michigan, their economy or the national economy, for that matter.
If GM and Chrysler spend more time working on innovation, they both could be in a healthier economic position and could better compete with less expensive, foreign carmakers.
