December 2010 Articles & Features
adjust text size:
Editor's Report
By John Lypen | December 2010
While a study assesses the impact of government intervention into the finances of GM and Chrysler, one thing is clear: The economic crisis we’re now emerging from will have a lasting effect on our industry.
It’s probably no small coincidence that results of a study lauding the federal government’s bailout of GM and Chrysler were released just a day before GM’s scheduled return to the stock market. The bottom line, according to the Center for Automotive Research (CAR), an Ann Arbor, MI-based nonprofit research organization (which, it should be pointed out, receives about one-third of its funding from the federal government), is that the government assistance provided to General Motors and Chrysler during the last two years enabled orderly bankruptcy proceedings and led to the saving of more than 1.14 million jobs in 2009 alone.
The CAR report, which can be found in its entirety at, acknowledges that while there was general agreement the failure of GM and Chrysler two years ago would harm the U.S. economy, there was also vigorous debate on the magnitude of the potential employment and economic impacts, the size of the government response and the precedent that would be set by government action.
A little over two years ago, CAR produced its first estimate of job loss and financial impact related to the 2008 economic crisis. At the time, estimates were created for a scenario involving a short-term, severe (50% to 100%) contraction of Detroit Three capacity in the United States. The job loss estimates ranged from 2.5 to 3 million in the first year and 1.5 to 2.5 million in the second year, while estimates of personal income loss ranged from $125.1 to $150.7 billion in the first year and $86.4 to $138.2 billion in the second year. The net impact to government, in terms of increased transfer payments, reduced social security receipts and reduced personal income taxes paid, ranged from $49.9 to $60.1 billion in the first year and $33.7 to $54.3 billion in the second year.
Seven months later, in May 2009, CAR produced estimates for two scenarios: a quick, orderly Section 363 bankruptcy (which is what eventually transpired) and a drawn-out, disorderly bankruptcy proceeding leading to liquidation of the automakers. The “good bankruptcy” outcome was projected to have avoided a loss of 1.54 million jobs between 2009 and 2010, while personal income losses were expected to be $81.8 billion less during the same time frame. It was also estimated that avoiding the worst-case scenario would have a net government impact of $32.2 billion.
Today, using actual economic performance for 2009 and 2010 year-to-date, CAR concludes that the $80 billion in U.S. aid to General Motors, Chrysler, GMAC and Chrysler Financial resulted in nearly 1.5 million jobs saved, prevented additional personal income losses totaling just under $97 billion and had a net impact to the federal government of greater than $28 billion between 2009 and 2010.
Whether or not you were a proponent of the federal government’s intervention, what’s done is done and there are early positive indications for the future of both GM and Chrysler. According to the CAR report, 53,000 workers have been added since the two automakers emerged from their bankruptcies in the summer of 2009. As well, market share for all of the Detroit Three has rebounded in the first three quarters of 2010.
Coming out of the Great Recession, an especially significant metric for the aftermarket service and repair industry is the length of time consumers are holding on to their wheels. While the average age of light vehicles on the road has been steadily rising for years, recent Polk data highlights an even more important statistic: Currently, those who purchased their vehicles new are holding on to them for an average of just under 64 months (just over 46 months for purchasers of used vehicles). Prior to the economic crisis, these numbers had been increasing by about 4% a year, but since then they’ve skyrocketed by nearly 15% a year—a number that certainly holds promise for increased selling opportunities in the aftermarket.