Auto Industry’s Impact on Households

The automotive industry is an essential piece to the economy of the United States. Currently, there are about 850,000 manufacturing workers and 1.8 million auto dealership workers that are employed in the automotive industry today (Amadeo). This industry was and continues to be negatively impacted by the recession that has plagued our nation’s economy since 2008. Unemployment has been one of the biggest issues in the auto industry, along with the negative impact on the government and firms in the United States. Therefore, I will focus on how households have been impacted by the auto industry recession. This will include how unemployment affects households, why the auto industry needed to be bailed out and what areas of households have been hurt the most by the unemployment.

A massive amount of job cuts in the American automotive industry was the result of a devastating recession that the United States began to face in 2008. Job loss results in immediate problems for workers and in turn, the household that worker lives in. When a worker loses their job, the entire family of that worker is affected because now that family cannot live the way it is used to living with steady income. This was a problem that 174,192 workers had to come up with a solution to, because that is how many jobs were cut in the 2009 automotive industry (Challenger, Gray and Christmas 2). The unemployment rate has risen from 7% in 2007 to over 25% in the automotive sector of the economy. Many workers that were laid off could not afford to live without a job, so the demand for jobs began to increase. However, the problem was that companies had to continue to lay off workers and shut down factories because the economy was not recovering. This led to a decrease in the supply for jobs in the United States. Graph 1-1 shows this relationship with supply and demand curves. The area in between the two dots and the equilibrium represents the job shortage that was being faced in the United States automotive industry. The ratio of unemployed workers to job openings in the auto industry was close to 6:1 at some points in 2009. That goes to show how difficult it was to find a job after being laid off from a job in the auto industry and how large the gap was between unemployed workers and job openings.

Although there were hundreds of thousands of households who were impacted by the automotive industry recession, it could have been millions if the United States didn’t loan money to the American auto industry to bail them out of financial troubles. According to a poll administered by CNN’s Peter Hart, “18 million households or 15% of American households would be directly impacted by the auto industry going out of business.” Hart says that this has an equivalent impact on households as having a dozen Hurricane Katrina’s hit the United States from coast to coast. This means that there would be twelve times more households affected by the auto industry going out of business than households affected by Hurricane Katrina. Also, the poll showed that 77% of American households would be impacted at some point in time by the failure of the auto industry. These numbers stress simply stress how important that American auto industry is to the American people as well as the nation’s economy. That is why the government couldn’t use laissez-faire economics, which would let the industry fail on its own and then try to build itself back up again. From the household standpoint, loaning money to the big corporations in the auto industry is positive because it gives these corporations a chance to rebuild and eventually create jobs for those who have been laid off.

There are definitely certain areas that have been impacted by the auto industry recession significantly more than others. The area that was affected most is known as the auto corridor which spans from Michigan down to Tennessee and northern parts of Mississippi and Alabama. The reason that this area was impacted the most was due to the fact that this is where the majority of automotive factories are located in the United States, so this area has a large number of workers who are employed by the automotive industry. Detroit, Michigan is known as the world’s traditional automotive center. Therefore, it should come as no surprise to hear that the city has been struggling severely during this most recent recession. In September 2009, the unemployment rate in Michigan reached 15.3% and the number of automotive jobs lost in Michigan now is larger than the number of Michigan’s automotive employees (Lombardi). There is not a simple solution to this problem, because the price of homes in the United States is steadily decreasing. This makes it difficult for a family to sell their home and relocate in order to become employed again. Also, it is nearly impossible to find a job in the automotive industry which makes it extremely difficult for workers in Detroit, Michigan. Most workers have been forced to move into other professions because of the lack of jobs in the automotive industry. The automotive assembly jobs that are given to some displaced workers in Michigan had wages as low as $23,000 a year compared to the $50,000 to $60,000 salary made by United Auto Workers. These numbers show that the programs being put in place to help displaced workers are not very effective, because $23,000 a year is not enough to support a family on. This leaves thousands of households in Michigan searching for ways to make money, so that they don’t lose their houses or other valuable possessions that could possibly be taken away. Graph 1-2 shows the drastic difference in unemployment between the United States as a whole and the city of Detroit. The significant gap in unemployment can be attributed to the jobs that were cut in the factories of the major automotive companies such as General Motors and Ford.

The government, along with the American automotive companies, need to figure out an effective plan for decreasing this large number of jobs cuts and an extremely high unemployment rate. The problem is that the programs being set up for displaced workers cannot be sufficient for much longer. There need to be more stable and well paying jobs that allow workers to live a life that is comfortable, where they are at least able to provide themselves with the necessities of life such as food and shelter. The people that are willing to work need to have a place to make enough income for their family and household.

Works Cited

Amadeo, Kimberley. "The Auto Bailout." About.com. Web. 21 Apr. 2010.
Hart, Peter. "Polls and the U.S. Auto Industry." Auto-Report.net. Web. 21 Apr. 2010.
Lombardi, Britton. "Automotive Industry Outlook: Understanding the Impact on Workers and Communities." Chicago Fed Letter. Web. 21 Apr. 2010.

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