LEXINGTON, KY - The recent economic downturn has affected all sectors of the American economy, but maybe none more than the auto industry. A survey in December of 2008 by the Turnaround Management Association of professionals involved in corporate restructuring found that the American auto industry would be the most severely distressed industry in 2009, taking the top spot away from housing and construction.
After working to shore up the troubled financial sector, the President and Congress then turned their attention to the struggling auto industry. They cited not just the direct damage to the economy from the collapse of one of the major automakers, but the indirect damage as companies up and down the supply chain suffered under the ripple effects of such a collapse, hurting the communities that depend on the jobs created by smaller manufacturers.
President Obama summed up this perspective in a speech to GM autoworkers at a plant in Ohio in September:
"But in the midst of a deep recession and financial crisis, for me to have just let the auto industry collapse, to vanish, would have caused unbelievable damage to our economy -- not just here in Lordstown, but all across the country."
Jessamine County could be seen as a direct example of this "too big to fail" philosophy towards auto manufacturers. While manufacturing only accounts for 15 percent of Jessamine County's labor market, three auto parts manufacturers are some of the largest employers in the area. TrimMasters, Inc., which builds interior components for Toyota, is one of the five largest employers in the county, with over 370 employees. McKechnie Vehicle Components employs some 260 workers, while Jackson Plastics employs around 115. These three companies alone account for almost 5 percent of Jessamine County's total workforce, and nearly a quarter of its manufacturing base, according to the Kentucky Cabinet for Economic Development.
Before Cash for Clunkers, a poll was taken of 15 manufacturers in Jessamine County, employing approximately 2500 people, to see how bad the recession had hit within the county. The results, according to Wayne Foster, President of the Jessamine Development Authority, showed that 14-15 percenet of the manufacturing labor force had been laid off, with the largest numbers coming from the three auto parts manufacturers. With Jessamine County unemployment nearing an 8.8 percent peak in September, it was clear that the auto parts manufacturers needed a lucky break to keep from adding to that number. What they got was Cash for Clunkers.
The Car Allowance Rebate System (CARS), known as Cash for Clunkers, allowed a government rebate for trading in certain vehicles for more fuel-efficient models. The program was popular among consumers, causing the government to expand and extend the program after initial funds dispersed more quickly than anticipated. The result was the sales of nearly 700,000 new vehicles under the program. Critics, however, contended that the one-shot program would merely produce a quick spike in sales that would then drop back to the same low sales experienced before the program. This, conceptually, would hold true for all the companies down the parts supply chain.
"That wasn't our experience," said Mike Torakis, CEO of McKechnie Vehicle Components, noting that "all those sales increased dramatically" and remained at a higher level than they did before the program. "I think there was a substantial benefit."
Rob Knight, general manager of Jackson Plastics, which supplies mainly Toyota parts, agreed.
"We definitely can see an increase in the volume supplied to those plants. It has sustained. Daily volume has stayed where it jumped to [as a result of the CARS program]."
Knight pointed to the fact that Toyota actually scheduled some Saturday production at their Georgetown plant to meet demand. He sees the CARS program as one of broad effect.
"When you start looking at the impact, it just ripples across the whole industry."
Torakis said that the criticism of the program has been proven to be unfounded.
"It was the right medicine at the right time," he said. "We're very appreciative of it."
Not only has McKechnie benefited under the CARS program, the larger stimulus package helped to save the company. McKechnie, parts supplier for Toyota, GM and Ford, was able to secure a $5 million loan backed by the USDA under the provisions of the American Recovery and Reinvestment Act of 2009. Because of the CARS program and the stimulus loan, McKechnie has managed to stabilize itself as a company, taking orders from new customers, including a substantial amount of business from the new Volkswagon factory opening in Chattanooga, TN.
Torakis said that any personal misgivings he might have had initially about the program have given way to a strong appreciation for the CARS program and the stimulus package.
"I really think that the country was in deep trouble and this was a good thing. The recession is going to come to an end, and I personally think it was well worth it."
As for the CARS program and stimulus package, Torakis credits them with nothing short of a minor miracle.
"They talked about how they were doing it to shore up the bigger companies, but I really think they did it more to protect the supply base," he said. For Torakis, the results speak for themselves:
"They saved 300 jobs. They saved our company."