"A failure from the Big Three would be a huge, huge hit," said Donald Grimes, a research specialist at the University of Michigan. "But there's a real question about whether there's room for all of them."
Others posit that the failure of just one of the Big Three would send shock waves through the entire manufacturing sector that could devastate suppliers and freeze up the other two carmakers. Hundreds of thousands of jobs would be lost.
"If Ford or GM goes down, you take a 2-million-job hit" that would also dump hundreds of thousands of retirees on the federal Pension Benefit Guaranty Corp., said David Cole, chairman of the Center for Automotive Research. Chrysler and GM will be responsible for an estimated $90 billion in pension and health insurance benefits by 2017.
This month, the center began running what it calls catastrophe studies to predict the consequences of an automaker's failure. The studies project a toll of up to 2% of gross domestic product. "The hit to the economy is $200 [billion] to $300 billion," Cole said.
The Big Three's slow loss of market share to foreign brands sped up in the 1990s. In the 1970s, GM controlled more than 40% of the U.S. market; today, foreign carmakers account for 51% of U.S. sales.
What's more, most foreign automakers have plants in the U.S. So far this year, 27% of the cars bought in the United States were built in U.S. plants owned by foreign carmakers.
That, says David Gregory, law professor at St. John's University and a former labor representative for Ford, clearly indicates where the industry is headed. Because companies such as Nissan Motor Co., with a huge operation in Tennessee, and BMW, which builds vehicles in South Carolina, have erected plants in areas where labor is inexpensive and local laws make it difficult to establish unions, they have a huge cost advantage over Detroit.
Last fall the Big Three renegotiated their contracts with the United Auto Workers union, imposing a two-tier wage structure that is more competitive with foreign automakers. But they won't see most of the benefits until 2010.
"The reality is that Japanese and European automakers are already in the U.S. in a big way," Gregory said. "They can more than make up the capacity lost by the closure of the Big Three. I'd say they could do it in five years or less."
