Though it is too early to determine the impact of recently announced layoffs by Ford Motor Co., rating analysts said some municipalities have managed well in recent years with plans to mitigate the effect of closings.
Standard & Poor’s last week released a report titled, “So Far, Debt Ratings on U.S. Localities Withstand the Impact of Auto Plant Closings,” outlining some ways that local governments have managed the effect of layoffs and plant closings in the automobile industry in recent years.
Ford this month announced that it would offer early retirement packages to all 75,000 of its employees and hoped to eliminate thousands of salaried and hourly jobs to save $5 billion a year. That followed General Motors Corp.’s announcements that it was offering 113,000 employees buyouts to save $1 billion a year. DaimlerChrysler AG has also reduced its work force by 26,000 jobs and plans to further scale back production.
While the credit rating impact of the most recent announcements is as yet undetermined, Standard & Poor’s analysts said so far closings have had “surprisingly little effect on the ratings of localities” in which those closings have occurred.
Some municipalities have weathered the closings by increasing benefits to laid-off workers, managing budgets with the tax revenues impact with an eye to the closings, and weighing options for redeveloping vacant facilities, analysts Susan Knutson and Horacio Aldrete-Sanchez wrote in the report.
Those municipalities that lack a diverse manufacturing base have felt the affect of the auto industry’s changes more acutely, according to Standard & Poor’s. The success of foreign companies, such as Honda and BMW, has benefited other municipalities.
The degree to which municipalities depend on sales and income taxes also affects an area’s credit quality when a plant closes, analysts noted.
Standard & Poor’s also recently released a report on its review of plant closings and their impact on credits in Canada and Mexico. The report is titled: “Changing Patterns of Auto Production Help Local Ratings in Canada And Mexico.”
