CAR Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers

Full Description:

The automotive industry has long been, and continues to be, one of the most important sectors in the U.S. economy. The motor vehicle and parts industries employed 732,800 workers directly as of September, 2008, and the Detroit Three employed 239,341 hourly and salary workers in the United States at the end of 2007. The international producers employed roughly 113,000 people in the United States at that time. The auto industry has one of the largest economic multipliers of any sector of the U.S. economy, and is sufficiently large that its growth or contraction can be detected in changes in the U.S. Gross Domestic Product. In many states, employment in automotive and automotive parts manufacturing ranks among the top three manufacturing industries. The purpose of this memo is to estimate the economic impact—in terms of jobs, compensation and tax revenues—of a major contraction involving one or more of the Detroit Three automakers.

Two scenarios are presented: first, what would be the impact of the Detroit Three automakers ceasing all operations in United States, or the 100 percent contraction scenario, and second, what would result from a 50 percent reduction in overall Detroit Three employment and production in the U.S. economy, an event that probably would involve a contraction by two of the domestic automakers. The circumstances are such that either of these scenarios is possible, and indeed one or the other is probable, within the next 12 months.