TPT May 2008

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May 2008 78 ›
From the Americas
The economy
Broadening impact of the American Axle
labour dispute prompts use of the
dreaded ‘R’ word: recession
Some 3,650 workers represented by the United Auto Workers
(UAW) have been on strike against the Detroit-based auto parts
supplier American Axle & Manufacturing since 26 February, and
no resolution is in sight. On 30 March, Detroit Free Press business
writer Jewel Gopwani observed that the auto industry’s latest
labour dispute was about more than wage and benefit cuts for one
company’s workers. Making her meaning very plain was the title of
the article posted on the paper’s website freep.com: ‘American Axle
strike tipping the nation closer to a recession.’
Ms Gopwani wrote, “The strike has idled dozens of factories at
former owner and top customer General Motors Corp, as well as
several parts makers [besides American Axle]. Those companies
are losing out on sales, while thousands of workers are missing
their paychecks. That may well be what pushes the nation into an
official recession.”
This was not idle speculation. By the following day, 1 April, the
strike would have spread out from Detroit, where both companies
are based, and forced GM to cut or stop production at 30 plants.
The strike at four American Axle plants, employing 3,650 people
in Michigan and New York, had already forced work to stop or
slow down at 29 GM plants. At the 10 plants that had been idled
altogether, as many as 18,385 hourly workers had been sent home.
In a growing ripple effect, suppliers had shut down production lines
and plants, laying off workers – at least 5,000 of them – as GM’s
need for parts dried up.
The situation did not escape the notice of a financial community
already made nervous by the bad-mortgage troubles of the US
lending industry. Deutsche Bank auto analyst Rod Lache told the
Free Press that he had lowered first-quarter earnings expectations
for GM and American Axle, as well as suppliers Lear Corp and
Magna International Corp, because of the strike. Similarly,
Ms Gopwani noted, Standard & Poor’s Rating Service was thinking
about cutting the credit ratings of both GM and American Axle, and
of Tenneco Inc, another supplier.
This occurs in what already is shaping up as the weakest sales
year in a decade for the automakers of Detroit, who already face
declining market share and high prices for raw materials and energy.
Ms Gopwani cited the estimate of Edmunds.com, a privately owned
review-and-rating service for auto buyers and sellers, for a drop in
new vehicle sales of 13 per cent in March, compared with March
2007. This includes a 15 per cent drop for General Motors, which
was not considered likely to make up lost production of models hit
by the strike.
But the main thrust of the article from the epicentre of the domestic
auto industry was on the broader consequences of the strike “now
bleeding into the nation’s economy”. The Detroit Free Press offered
three unassailable propositions and a troubling corollary:
• Layoffs at GM and several of its suppliers helped boost the
number of newly filed unemployment claims earlier in the month
• Lost vehicle production from the strike in the first quarter boils
down to a 0.3 per cent decline in the gross domestic product
(GDP)
• The GDP measures the value of goods and services produced
in the United States, and two consecutive quarters of a shrinking
GDP is the textbook definition of a recession.
“It’s possible,” Nigel Gault, chief US economist at the consulting and
advisory service Global Insight, told Ms Gopwani, “[that] the strike
could make the difference between a positive and a negative GDP
number, because we’re so close to the zero mark.”
Of related interest . . .
› 27 March brought the long-awaited announcement from New
Delhi of Tata Motors’ purchase of Jaguar and Land Rover from
Ford Motor Co. The price of $2.3 billion — about half what Ford paid
for the brands — is not the end of it for Ford, the world’s third-largest
carmaker in terms of sales. When the deal is completed, probably
by mid-year, Tata will get an additional $600 million to cover pension
entitlements. The fast-growing Tata Group is one of India’s largest
conglomerates. Other Indian companies are also eyeing the US as a
weak dollar makes international takeovers attractive.
Regional indexes show business is off
in several US localities
Local business activity has declined in several regions of the
United States, according to the most recent report from the
National Association of Purchasing Management. Data released
by the association on 1 April showed that business activity in the
Milwaukee area of Wisconsin and manufacturing activity in Texas
contracted in March over the previous month. The index for the New
York area was also down.
Business activity also shrank in the factory-dense Midwest in
March, for the second consecutive month, while a rising price
component revived concerns about recession and inflation. NAPM’s
Chicago business barometer rose to 48.2 from 44.5 in February,
but remained below the 50 level that separates contraction from
expansion.
The good news for Chicago came in the form of a sharp rise in the
employment index for the area, from 33.5 in February to 44.6 in
March – the biggest single-month employment gain since February
2002. Also, the new-orders index jumped from 48.8 in February to
53.9 in March. However, the measure of prices paid jumped from
79.4 in February to 83.9 in March. That is the highest since June
2006.
The Federal Reserve Bank of Dallas monthly manufacturing index
of general business activity in Texas slid to minus 22.7 in March,
from a negative 21.4 in February. This was the ninth consecutive
monthly reading below zero, indicating contraction.
• The weakening US economy is taking its toll on Mexican
families dependent on remittances from the estimated 10 million
Mexicans living in the United States, as wage-earners living
abroad send less money to relatives back home. The Bank of
Mexico said 1 April on its website that remittances from abroad