Kokomo may be country's most vulnerable auto town

scott.smith@kokomotribune.com

Research on the potential impact of losing America's Big Three automakers continues to pour in, and it appears Kokomo stands to lose more than any other U.S. city.

Kokomo Mayor Greg Goodnight and Marion Mayor Wayne Seybold will host a forum Monday in Indianapolis, billed as "Indiana Communities & The Big Three - How Our Futures Are Connected."

The three-hour roundtable discussion will run 9 a.m. to noon at the Sheraton Indianapolis City Centre's Meridian West-Center Room, 31 W. Ohio St. Economist Robert E. Scott of the Washington, D.C.-based Economic Policy Institute will be one of the featured speakers.

Goodnight and Seybold have been engaged in a self-described "media blitz" in an effort to win public support for bridge loan funds to the Big Three - aid which the majority of Americans have yet to see as necessary.

"The cost of allowing [the Big Three] to fail is substantially higher than the cost of helping them survive," Goodnight said last week. "Those costs can't even be compared."

One of the arguments certain to be presented Monday is that the effects of a Big Three failure would not be contained to a few Rust Belt cities.

But it's also clear Kokomo is in a uniquely precarious position.

"Kokomo has a far higher percentage of auto manufacturing jobs than any other metro area," said Howard Wial, economist and fellow with the Washington, D.C.-based Brookings Institution.

"We know these jobs are heavily dependent on the Big Three. The town with the next highest percentage is only about 8 percent, which was Flint [Mich.]," Wial added.

Until this week, most of the research on the auto industry's economic impact was centered on a widely circulated report from the Center for Automotive Research in Ann Arbor, Mich.

Researchers there concluded even a 50 percent reduction in Big Three operations would result in the loss of 2.5 million U.S. jobs and $275 billion in personal income in the first three years.

This week, those findings were localized by a report from the Brookings Institution, which concluded the economies of more than 50 metropolitan areas across the U.S. would be severely disrupted by a Big Three failure.

And Brookings researchers concluded Kokomo would be hit harder by a Big Three failure than any other U.S. metro area.

"In Kokomo, about 22 percent of all jobs are in autos and auto parts," Wial's report, "How a Metro Nation Would Feel the Loss of the Detroit Three Automakers," states. "A loss of those jobs could mean a loss of well over half the employment in the area."

Kokomo has already keenly felt the loss of auto manufacturing jobs over the past decade, losing local jobs at the rate of about 1,000 per year during that time. Most of those jobs were auto related.

But there are still plenty of auto jobs in the city that produced the first carburetor and the first push-button radio.

Indiana Department of Workforce Development Employment statistics from the first quarter of this year showed 9,716 auto-industry jobs in Howard County.

According to the Brookings report, which used 2005 figures, no metro area in the United States is as heavily dependent on auto jobs as Kokomo.

While numerous towns in Ohio and Michigan have, in numerical terms, about as many auto jobs as Kokomo, the percentage of those jobs to the overall work force - even in Detroit - is somewhere between 5 percent and 8 percent, the report states.

Anderson, Columbus and Lafayette also fall into that category.

Kokomo still has close to as many auto jobs as several much-larger metro areas, including Louisville, Ky., and Dallas-Fort Worth-Arlington, Texas.

The Brookings report estimates a loss of auto jobs amounting to 1 percent of an area's work force could mean a corresponding loss of up to 3 percent of the area's jobs overall.

That means that towns like Anderson, Lafayette and Columbus could see job losses of between 15 percent and 24 percent if the Big Three are liquidated, Brookings researchers estimated.

Scott, author of the study "When Giants Fall," said he fears a bankruptcy at any of the Big Three automakers would cause a "cascading effect" of bankruptcies.

Unless federal aid is offered, Scott said he sees the failure of all three automakers as the most likely scenario, followed closely by bankruptcies at parts suppliers.

"A number of mainly Southern governors and senators are under the mistaken impression their states would benefit [from a Big Three failure] because they have some foreign transplant plants there," Scott said, mentioning Indiana as one of the states where the governor is against bridge loan funding.

Scott said the auto industry is now so tightly interrelated that a Big Three failure would probably shut down domestic production at the transplant facilities for at least a year.

"Toyota has over 500 domestic suppliers," he said. "And 70 percent of the companies that supply GM supply one or more of the foreign manufacturers."

Secondly, Scott said losing the domestic automakers would greatly increase the U.S. trade deficit.

Locally, most autoworkers don't see bankruptcy as a viable option, echoing United Auto Workers president Ron Gettelfinger's contention that "no one is going to buy a car from a bankrupt automaker."

Kokomo's second-largest employer, parts-supplier Delphi Corp., filed for bankruptcy in 2005 and has yet to emerge. Two years before the current credit crisis, the financing package Delphi tried to secure for reorganization fell through, and no alternative financing has been forthcoming.

As Delphi struggles, it has continued to cut its local work force.

In mid-2003, Delphi employed 6,300 in Kokomo. Today, its work force is about half that.

Last week, Forbes magazine listed Kokomo third in its ranking of the "10 fastest-dying cities," saying the City of Firsts was "remarkably poorly positioned" in the current auto crisis.

"What we're talking about in Indiana is the loss of more than 147,000 jobs," Scott said. "And if most of those jobs are concentrated in the northern part of the state, you could be talking about a 7, 8 or 9 percent increase in unemployment in that region."