GM plant news rattles local businesses, political leaders in Michigan, Ohio
Hamtramck — Looking southeast down Joseph Campau Avenue from the City Market here, pedestrians get a glimpse of Detroit-Hamtramck Assembly, one of five plants General Motors Co. said last week it will idle sometime next year.
The market's owner, Waleed Eysa, says business already has slowed 5 percent. And he's unsure what that will mean when "the Cadillac plant" becomes fully "unallocated" on June 1, ending production of its Buick LaCrosse, Cadillac CT6 and Chevrolet Impala and Volt there with nothing to replace them.
"I'm mad," Eysa said. "I had a lot of business there. A lot of people need to work and make money for their kids. They're asking me for a job. I wish I could hire them, but I have enough already."
Eysa and his six employees are among the local residents already affected by GM's restructuring plans as autoworkers begin to pinch their pocketbooks awaiting details of more permanent plans. The Detroit automaker's strategy to lay off thousands of salaried employees, imperil 3,300 hourly jobs and possibly close plants is shaking up local businesses and rattling politicians, but economists say the state is stronger than before the recession.
”We shouldn’t panic about the overall economy,” said Gabriel Ehrlich, an economic forecaster at the University of Michigan. “Michigan has diversified over the past 20 years. It’s gone from a more auto-centric, goods-producing economy toward a service economy. We can withstand these restructuring and trenches better than in the past.”
Facing foreign tariffs and flattening auto sales, GM said after 2,250 salaried employees took voluntary buyouts that it would need to cut about 6,000 more white-collar jobs starting in January. GM also said it would leave three assembly and two propulsion plants, including Detroit-Hamtramck and Warren Transmission, "unallocated" — that is, without future product investment — by the end of the next year.
Altogether, the company’s restructuring would affect 14,300 people. Adding to that, Ford Motor Co. also is in the midst of restructuring, which some analysts say could include more cuts than GM's planned actions. Ford dismisses such assessments as "pure speculation."
Nik Nuculaj, manager at Motor City Sports Bar down the street from Eysa's market, said the bar was down 10 percent last week. He estimates up to 25 percent of its business comes from workers at the assembly plant. Its closure could mean layoffs for the eight people who work there.
"You feel it now," he said. "Everybody's all scared. I'll still be here. It's still a neighborhood bar, but it's going to be hard. You've got to deal with it."
Nuculaj was laid off from American Axle & Manufacturing, which closed its plant on the Detroit-Hamtramck border in 2012. He grew up in town, and recalled when the city used its powers in the early 1980s to take over a Polish neighborhood known as "Poletown" for GM to built its plant.
"A lot of people lost their houses," he said, referring to the process that culminated in the opening of GM's Detroit-Hamtramck plant. "I can’t believe they're considering shutting it down. The railroad system is right there. I-75 is right there. It's the perfect location."
Detroit-Hamtramck employs 1,348 hourly and 194 salaried workers. Warren Transmission has 265 hourly and 70 salaried workers. Until the current UAW-GM national contract expires in September, members in union-represented plants would be shielded from abrupt closures.
The "Plant Closing and Sale Moratorium," outlined on page 356 of the United Automotive Workers' agreement with GM, says the automaker will not close or idle "in any form, any plant, asset, or business unit of any type" outside of collective bargaining, with a caveat for extreme market conditions or an "act of God." Contract negotiations begin next summer.
Life after GM
GM has not detailed where it plans to make its salaried layoffs. With a large concentration of employees in Detroit’s Renaissance Center and the Warren Technological Center, Metro Detroit is expected to take a fair share of the hit.
Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, said some employees may need to move to find work, especially those who are more specialized. Workers in such other divisions as accounting or legal may have different employment prospects because of their more general skills.
Assembly and powertrain layoffs, however, have a greater impact on the economy. A 2015 study by the automotive research center found that for each worker hired by an original equipment manufacturer, an average of 6.6 jobs were created. For GM, Dziczek said, it’s even more than that.
“It’s a huge regional supply chain,” she said. “People think about steel and parts, but it’s also the person driving the trucks, the logistics of the product in and out of the market, everything that the company buys is part of this multiplier. Then you take those payments into account for the workers with daycare, groceries, medical care. Those spending the paychecks generate even more economic activity.”
Although Detroit-Hamtramck employs more workers than Warren Transmission, Dziczek said most concerning is that GM's list of targeted plants included two propulsion plants. On average, she said, these facilities supply four assembly plants.
“Unemployment remains very low,” Dziczek said. “But it’s very, very difficult for auto workers to fully replace that income because it’s such a high-paid industry.”
Job-search site Indeed looked at the jobs on which GM manufacturing workers were clicking over the past year. Warehouse worker, machine operator and laborer made it into the top five, but customer service representative was the most-clicked at 3.5 percent.
“That’s the most available position,” said Martha Gimbel, Indeed’s director of economic research. “Our economy is evolving more and more toward a service economy. That is something that workers are going to have to be taking into consideration. We often see a real divergence in outcomes. Some workers that manage to find other manufacturing jobs, they do OK. Other workers who end up in these lower-paying jobs may have to make a real adjustment.”
Employment trends amid a generally buoyant national economy could help. The nation's unemployment rate is 3.7 percent, its lowest in nearly 50 years. And Michigan's is 3.9 percent, the lowest since September 2000 — and way down from a rate exceeding 14 percent nearly a decade ago.
Earlier this month, the University of Michigan released a state economic forecast predicting slowing job growth through 2020 even as the economy should continue to expand. The forecast did not take into account General Motors’ announcement, but the researchers predicted slowing vehicles sales would have a negative economic effect.
“It doesn’t come out of the blue,” Ehrlich said. “It could certainly accelerate the forecast, but the big picture is not changing.”
Traditionally Michigan’s economy and the Detroit Three move up and down together. Even back in the mid- to late-1990s with flat vehicle sales, the state’s gross domestic product continued to increase. And with growth in other job sectors such as health care, hospitality and leisure, arts and entertainment, Michigan may be better protected now that manufacturing represents 14 percent of jobs rather than 20 percent in the late 1990s.
“If we really had a big downturn and vehicle sales really started plunging, that would be a different story,” Ehrlich said. “That’s not what we’re seeing. We’re still seeing decent sales numbers. Michigan can keep growing, even in the face of some softness in the job sector.”
It may be a different story for the community surrounding GM's Lordstown plant in northeast Ohio. It's slated to lose production of the Chevrolet Cruze compact next year, and, as of now, it has no new product allocation. Trumbull County’s economy is heavily influenced by the manufacturing sector, which drives non-manufacturing employment in the region.
In a report released last week, Moody’s Investors Service estimated the plant’s payroll of $250 million from 1,435 hourly and 183 salaried workers generates nearly 10 percent of all income tax receipts in the county.
“Youngstown is two times more reliant on manufacturing than the nation,” Moody’s analyst Frank Mamo said. “The manufacturing sector in Youngstown has been really slow to recover. They’re more exposed.”
Population in the Youngstown-Warren-Boardman region is down 10 percent since 2000. According to a recent study by Indeed, that metro area had the slowest job growth year over year in the country with employment dropping 1 percent. That's a big reason Ohio's two U.S. senators are scheduled to meet Wednesday in Washington with GM CEO Mary Barra.
By contrast, the Detroit-Hamtramck and Warren Transmission payrolls account for 0.2 percent of Wayne and Macomb counties’ 2017 employment, according to the Moody's report. The effect, however, could grow with GM’s salaried employee cuts and if reductions hurt suppliers.
Lordstown Mayor Arno Hill said GM's decision came as a surprise, adding that he expected the plant to continue until at least 2021. The village has seen a loss of about $3 million in tax revenue as the plant cut shifts. It just finished a $900 million natural gas power plant, and a similar one is expected to break ground in three or four months.
Lordstown has attracted a few businesses over the past 10 years, including a McDonald’s distributor, a HomeGoods distribution center and an aluminum bullet factory.
“We’ve been trying to diversify,” Hill said. “We want to make sure we can still exist.”
GM has received three tax abatements since the Lordstown plant’s opening in 1966, according to Hill. The last one was $84.1 million about a decade ago. Hill said the community is willing to work with the state to offer another if needed.
“A lot of people were surprised,” he said. “They’re not happy. No one wants to see one of the largest employers leave. We’ve been through ups and downs in the Mahoning Valley. We’re not ready to throw in the towel yet.”
Neither is Detroit. Although some residents are calling for a moratorium on city tax abatements, Mayor Mike Duggan has said he will work with the UAW to fight back on GM's decision to idle Detroit-Hamtramck.
Michigan is home to several more GM assembly plants in Flint, Lake Orion and Lansing and propulsion facilities in Bay City, Romulus, Saginaw and Warren, according to its website. The other plants GM is targeting for idling — Lordstown, Baltimore and Oshawa, Ontario — are more isolated, making it more difficult for the automaker and the union to relocate workers.
“In the past, Michigan took a disproportionately higher hit,” Dziczek said. “But Detroit is the newest of the three assembly plants. That does weigh. It’s easier to work with, and it’s kind of iconic.”