Yes

Right now, any talk about helping the major North American auto makers is met with near universal condemnation. Let them fail, is the sentiment. People will give any number of reasons: the Detroit Three have become bloated and mismanaged; they don’t build cars that people want; or the unions are to blame for the mess the car companies find themselves, so chuck them all into the waste bin. Others will say the U. S. has earmarked nearly a trillion dollars to help the liquidity of U. S financial institutions and the result has been tightening credit and an economy that continues to worsen, both domestically and worldwide. There is no guarantee that any money given to the auto makers will help and could, in fact, make things worse, the argument goes.

But let’s get off this hobby horse and think about this more carefully. The Centre for Spatial Economics has just published a report for the Ontario Manufacturing Council looking at the economic impact of the Detroit auto manufacturers in Canada and what would happen if they failed outright or severely scaled back. The study finds a full or partial collapse of the auto makers devastating: “Either scenario is sufficient to push Ontario into a deep recession while the nation may barely escape one in the 50 per cent reduction scenario. The initial job losses of between 157,000 and 323,000 (depending on the scenario) quickly rise to between 296,000 and 582,000.”

So what does this mean for our industry? The conventional thinking is people will forego buying new cars and hold onto their old vehicles longer, which translates into more work for independents as these vehicles need to be maintained and repaired. I’ve even said the same thing.

I’ve thought about this a bit more recently, particularly in the wake of this recent study. If you are one of those persons who just lost their job in the auto manufacturing or parts industry, and the economy is in a deep recession, you might not only shelve the idea of buying a new car; you will forego any maintenance work on that older vehicle as well. When you are making a budget after you have lost your job, you will look at that vanished income and rapidly disappearing savings and decide paying the phone, gas, electrical bills and mortgage takes priority over work on the car’s suspension. J. D. Power and Associates found Canadians, on average, spent some $850 a year on service and repairs in 2008, adding up to an $11 billion market. Imagine for a moment if that figure drops by one per cent or more as a result of those laid-off workers cutting back on repair and maintenance; now think what that means for the industry as a whole and then for independents individually. The picture is not very edifying and could last for some years, depending on how long this recession lasts and people’s confidence in things remains in the doldrums because of the economic downturn.

This is the classic ripple effect. What happens in one sector of the economy affects other parts. So if thousands of workers for the Detroit Three find themselves out of work, their loss of income and confidence translate into loss of revenue for others, from the local Tim Horton’s to independents. So while many would like to see the big auto makers take their lumps and kicked to the curb, the consequences may harm more than it helps; and the independents will feel the result. So we may all have to swallow a bit of ‘free market’ rhetoric here and agree to help them if we want this industry to continue, unless we want to take some costly lumps and kick some independents to the curb as a consequence.

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When you are making a budget after you have lost your job, you will look at that vanished income and rapidly disappearing savings and decide paying the phone, gas, electrical bills and mortgage takes priority over work on the car’s suspension.