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***AFF AT: Cars key to the economy
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***AFFAT: Cars key to the economyAuto Industry not long term, won’t recover fullySmitka 12 (Michael Smitka, April 26, 2012, professor of economics at Washington and Lee University, has conducted research on the auto industry for more than two decades, Washington and Lee University, http://news.blogs.wlu.edu/2012/04/26/the-auto-industry-and-the-economy/ “The Auto Industry and the Economy”, KA) But looked at from another angle, the news remains grim. Sales may be up sharply but are still 2.5 million units below the 16.3 million average pace of the previous 15 years. In the mid-2000s, the industry employed 3 million workers. Despite the recent gains, we are still more than 500,000 jobs below peak. On the employment front, the glass is not yet half full. Will recovery add back all these jobs? On the negative side, the U.S. is now the third-largest car market, behind China and the European Union. As the BRIC countries (Brazil, Russia, India and China) and other economies grow, sales will rise and investment to assemble cars locally will increase. Over time, design and engineering jobs will follow. We face long-term, and not just short-term, challenges as the industry continues to globalize. China, for example, is serious about electric cars. But in the face of an outcry by Congress over a failed solar panel venture, the U.S. has pulled the plug on electric vehicle startups, refusing to disburse funds for firms that have finished the engineering stage to hire the workers and buy the parts needed to commence production. If the Chinese market grows, we can expect to see technology — high-tech jobs — flow to where the money is. It's not just batteries, either. For the first time ever, more than half of the finalists for the Automotive News PACE supplier innovation competition were based outside the U.S. As an independent judge for the competition, one firm I visited this year was Continental, a German company launching a new telematics system that will facilitate hands-free services outside the luxury segment. The first company to adopt the system is GM — but it will be on Chevys sold in China, not in the U.S. That's where the growth is. The hardware was developed at Continental's telematics R&D center outside Chicago, but the software engineering was done in Shanghai, where the electronics "black box" is also assembled. We're a player, but with globalization, we're not as big a player as in the past. On the flip side, there is encouraging news: BMW and Mercedes chose to base plants in the U.S. to make key global products, while Korean and Japanese assemblers and suppliers continue to move jobs here: Production follows sales, and Toyota, Honda and Nissan — the Japanese Big Three — now have full-fledged vehicle engineering capabilities in the U.S. Given current exchange rates, we remain an attractive production base, with a wide array of suppliers and specialized engineering firms, good infrastructure, stable politics and a robust ability to overcome shocks. But the slower the recovery, the more we will see new technologies and the accompanying skilled jobs shift to where the sales are. On net, I doubt we'll ever fully recover. Oil Prices HighOil prices high: Middle East instabilityBloomberg 7/29 ("Oil Trades Near Week High Before Central Banks Meet on Economy," 7/29/12, http://www.businessweek.com/news/2012-07-29/oil-trades-near-week-high-before-central-banks-meet-on-economy) Oil traded near the highest level in a week in New York on speculation that U.S. and European policy makers will act to boost growth and concern that unrest in the Middle East may spread and disrupt supplies. Futures were little changed, heading for the first monthly gain in three. The European Central Bank and the U.S. Federal Reserve are scheduled to meet separately this week to discuss the economy. The Syrian government’s use of “indiscriminate violence” will hasten its collapse, U.S Defense Secretary Leon Panetta said. The Middle East produces about a third of the world’s crude. Enbridge Energy Partners LP (EEP) (EEP) said it’s unsure how soon it can resume an pipeline that supplies oil to Chicago-area refineries after a leak. “The market is riding high on the talk of stimulus,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “We also have some geopolitical concerns.” That tanks the auto industryHamilton 08 (James, "How Oil Prices Are Affecting the Auto Industry," 8/4/08, http://seekingalpha.com/article/88819-how-oil-prices-are-affecting-the-auto-industry) This is very much the pattern we observed in previous oil price shocks, with an abrupt drop in the demand for Detroit's money makers and shift into more gas-stingy imports. The resultant hit to incomes in the auto sector is one of the mechanisms whereby an oil price increase can contribute to an overall U.S. recession. It's interesting to compare what we've observed so far this year with what happened during the oil price shock and economic recession that followed Iraq's invasion of Kuwait in August 1990. With the loss of oil production from both Iraq and Kuwait, the price of oil shot up quickly, nearly doubling between July and October, after which it fell back down almost as dramatically. By contrast, the oil shock of 2008 has been a more gradual affair, caused by booming demand from China confronting stagnating global production. Although the price increases occurred more gradually, in percentage terms the cumulative change in oil prices over the last year is almost as big as we observed in the fall of 1990. In terms of the consequences for auto sector employment, the number of U.S. workers employed in motor vehicles and parts fell by 62,000 workers in the month of November 1990, with a cumulative loss of 94,000 auto jobs before the recovery began in April 1991. By comparison, auto employment this past year fell by 83,000 workers, cumulatively about the same size disruption as in 1990, but spread out over a longer period. In terms of the effect on GDP, the contribution of motor vehicles and parts to real GDP fell by $15 billion between 1990:Q3 and 1990:Q4 and an additional $15 billion between 1990:Q4 and 1991:Q1. That corresponds to about 0.2% of GDP each quarter, or a hit to the annual growth rate of real GDP of about 0.8% each quarter. Ext. Oil Prices HighOil high: Draghi pledge Fox Business 7/26 ("Oil Prices Gain on Draghi Pledge," 7/26/12, http://www.foxbusiness.com/markets/2012/07/26/oil-prices-get-boost-from-ecb-president-comments/) Oil futures rose for a third straight day on Thursday after a pledge by the European Central Bank to protect the euro zone eased some worries about the region's debt crisis. A drop in U.S. jobless-benefit claims for last week also supported crude's advance and with the ECB comments overshadowed worries about slowing global growth and the euro zone's troubles. ECB President Mario Draghi, at a conference in London, pledged to do whatever it takes to preserve the euro zone. He also said tackling high sovereign borrowing costs comes within the central bank's mandate. The euro rallied to a two-week high against the dollar on Draghi's comments, encouraging investors to buy dollar-denominated commodities such as oil and copper. "The comments by Draghi are likely to bring that confidence back," said Eugen Weinberg, head of commodities research at Commerzbank. In London, September Brent crude settled at $105.26 a barrel, gaining 88 cents, after hitting a session high of $106.18. U.S. September crude closed at $89.39, rising 42 cents, after having gained earlier to a session high of $90.47. 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