honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser

Posted on: Saturday, June 4, 2005

Auto cutbacks bode ill for Midwest economy

By Dee-Ann Durbin
Associated Press

DETROIT — General Motors Corp. and Ford Motor Co. ordered more production cutbacks this week after they again lost business and market share to Asian rivals in May. Some of their key suppliers have seen orders dwindle so much, they've had to declare bankruptcy.

Many of the U.S. automakers' car and parts plants are in Midwestern states, such as this Ford factory in Dearborn, Mich.

Associated press library photo • May 2004

Add to that yesterday's news of fewer jobs in the U.S. manufacturing sector as a whole and it raises a disturbing question: Could the Midwest be falling back into the Rust Belt malaise of the early 1980s, when Michigan's unemployment rate surpassed 16 percent and GM saw its market share tumble nearly 10 percentage points?

"There's definitely a headwind for the Midwest economies," said Dana Johnson, chief economist at Comerica Inc., a Detroit-based bank. "Nationally, there's not a very steep or disturbing downshift in growth, but there's a very different situation here in the Midwest because of the Michigan-based automakers and suppliers."

A generation ago, it seemed like a weekly occurrence for a Midwest steel plant or aging factory to close and thousands of union workers to end up on the unemployment rolls as companies shifted production to lower-cost plants overseas.

While that trend hasn't disappeared, one big change is that Asian automakers are adding jobs in the U.S. — although few of the new assembly plants are in Michigan or other states surrounding the Great Lakes.

Labor Department figures released yesterday showed that total employment nationwide rose by a smaller-than-expected 78,000 in May, in part because of a net decline of 7,000 manufacturing jobs. That followed a loss of 9,000 manufacturing jobs in April.

Earlier in the week, the Purchasing Management Association of Chicago said its index of business activity in the Chicago area dropped to 54.1 in May from 65.6 in April and 69.2 in March. Readings above 50 indicate expansion in manufacturing; figures below 50 mean contraction.

The following day, the Institute for Supply Management put its U.S. manufacturing index for May at 51.4, suggesting a slowdown in growth.

That makes sense when you consider that GM and Ford both saw sales fall last month — GM by 5.5 percent from a year earlier and Ford by 3 percent. In particular, the two companies are having trouble selling trucks and sport utility vehicles, which generate the biggest profits.

Both GM and Ford said Wednesday that they plan to build fewer vehicles in the coming months than a year ago.

GM plans to cut third-quarter production by 100,000 vehicles, or 9 percent, and Ford announced a cut of 17,000 vehicles, or 2.3 percent. Both companies already cut production in the first half of the year.