Friday, April 30, 2010

Don't crow, but savor the moment

Recall the warnings in fall 2008, as the auto industry teetered and  Bush stepped up to the plate with the first lifelines to GM and Chrysler, that their bankruptcy could a) cause the collapse of the U.S. auto industry and vastly accelerate the loss of jobs, then already in freefall; b) destabilize the financial system through losses on loans and credit default swaps; and c) be the death of both companies, since Americans would never buy cars from a manufacturer that went into bankruptcy?

The industry is far from out of the woods. But still -- today, on the front page, the WSJ's Jeff Bennet and Mike Ramsey take stock and finds some really, really good news:
After the Crash, Auto Towns Revive
FLORA, Ill.—A year after the U.S. government swooped in to rescue two crippled auto giants, the car business is showing signs of life again—and so are local economies across the heartland that depend on it.

As soon as General Motors Co. and Chrysler Group LLC finished racing into and out of bankruptcy court last fall, orders for headlamps and other car parts began streaming back to two factories here in this southern Illinois hamlet. The factories quickly re-hired about 400 of their 550 laid-off workers, giving Flora, Pop. 4,772, a big shot in the arm.

Local businesses are perking up. The Best Western just outside town occasionally fills all 41 of its rooms again. And shoppers are less scarce in Joe Etchison's appliance store. "Last year, people were sticking with the basics and skipping the stainless-steel refrigerators," he said, walking his downtown showroom trailed by Taz, his dog. People have "figured out the world has not ended."

Similar scenes are playing out across the Midwest, where the speedy stabilization of GM and Chrysler appears to have helped towns tied to the auto industry to get back on their feet more quickly than they may have otherwise.
Maybe the picture would be similar if GM and Chysler had been left to their fates? Suppliers don't think so:

If GM and Chrysler had languished in bankruptcy, industry executives argue, things would have been far worse. "I think the supplier industry would have collapsed and, for that matter, the U.S. economy," said Matthew Simoncini, chief financial officer of seat maker Lear Corp., which itself sought bankruptcy protection last July. "Ultimately the bailout has helped the suppliers. It allowed GM to remain viable, and the fact that it got back up and running quickly really helped the supply chain."

Lear spent about 125 days in Chapter 11 last year, three times as long as GM. Now it, too, is hiring. A plant in Hammond, Ind., that supplies seats to Ford Motor Co. recently said it was adding about 250 more workers to the 170 employed there...[snip]

The TRW steering plant, one of the largest employers in Hawkins county, laid off 75% of its 275 workers last year when Chrysler's survival was in doubt. After the auto maker was restructured and paired with partner Fiat SpA, the plant brought back most of its workers. Other suppliers, including Cooper-Standard Automotive, which makes fuel lines, and Hutchinson Worldwide, which makes rubber seals, are hiring, too.

The midwest is still hurting, bad. Unemployment, auto sales, home prices have come back only a little ways. GM and Chysler face huge challenges. But still, the deals worked out or pressed on stakeholders before the companies entered bankruptcy enabled an emergence from bankruptcy so swift it probably mitigated the I-won't-buy-a-car-from-a-company-that-went-bankrupt effect.It also saved many suppliers from collapse:
GM and Chrysler emerged from bankruptcy in "an amazingly short period of time," said Martin Fischer, president of Hella Corporate Center USA. Their quick return to production "undoubtedly saved jobs and reduced operating losses at major North American suppliers such as Hella."
Yes, that socialist President of ours is killing capitalism, isn't he?

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