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Impact of Auto Industry on US Economy

June 02, 2009

Overall we are seeing signs of recovery in the US economy as production increases in many sectors. Art Laffer, economist, was right, the US can not spend its way out of a recession, it needs to produce its way out of a recession. While the short term news is encouraging, our largest concern for the recovery is the impact of the changes in the auto industry. GM and Chrysler in bankruptcy, dealership closures, plant closures, extended plant shutdowns, extremely high new car inventories and the eventual bankruptcy of many auto suppliers.

In general, new car sales represent about five percent of our GDP and directly or indirectly employ about 7 to 10 million people. As we progress through the above anticipated changes we believe that in general unemployment will increase from 8.9% currently to about 12% by year end. New job creation in the short-term will not keep pace with the job loss primarily related to the auto industry.

The obvious that we are not focused on:
• The recovery will be a jobless recovery for the next couple of years.
• Auto suppliers will suffer more than the auto makers due to government bailouts and volume reductions by auto makers.
• With high unemployment and more manufacturing jobs will going overseas, it is imperative that we need to re-train the US workforce.
• Cities / towns with a high dependence on jobs linked to the auto industry will see restaurants and retail store go under.
• All levels of government will continue to experience lower tax revenues.
• The best car salespersons will make more money.
• Regions with dependence on the auto industry will take a decade for housing markets to recover.
• It is a great time to buy a new car. The bargains will never be better due to high inventory and warranty uncertainties.
• The jobs that eventually replace these jobs that are lost forever will be related to alternative energy sources.
 

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