Janesville85.8°

GM layoffs will create short term struggles

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JAMES P. LEUTE
May 4, 2008
— Flooded by workers displaced from General Motors, its suppliers and other non-automotive manufacturers, the local economy is expected to sputter in the short term.

How it fares in the long term, however, will likely be a matter of community attitude and hard work.


“There will be short-term economic struggles, and we’re already in a recession,” said Steven Deller, a professor of agricultural and applied economics at UW-Madison.


“Morale will be low, but the community has to come together, say we knew this was maybe coming and figure out how to keep its chin up.”


Of course, Deller said, keeping one’s chin up makes it easier to get hit, which is exactly what happened last week to Janesville when GM announced that it would cut second-shift production in July and eliminate at least 750 local positions.


GM’s announcement is expected to ripple through local suppliers and put hundreds more out of work.


Janesville’s unemployment rates, which have been averaging between 5 percent and 7 percent for years, likely will climb this summer. Tighter consumer budgets likely will affect area retailers, many of whom suffered through 2007 and the nation’s worst retail performance in five years.


But observers say houses will continue to be built, bought and sold, companies will expand or relocate to Janesville and small businesses will bud.


Even the $140 million hospital and medical complex proposed for Janesville will be built on a schedule and open in 2010, a spokesman said.


Housing industry

Local real estate agents and homebuilders predict a difficult summer, but the struggle is not expected to be long term.


“We’ve been talking about it extensively, and there certainly is going to be an effect,” said Tom Wellnitz of Wellnitz & Sarow Builders in Janesville.


Consumers are likely to tighten their belts, Wellnitz said, noting that community morale has been beaten down by national news of a housing crisis and now the local news of extensive layoffs.


“We go through rises and falls all the time, and this certainly doesn’t help,” said Wellnitz, who is also president of the South Central Wisconsin Builders Association.


Wellnitz and Dan Kruse, president of the Rock-Green Realtors Association, said they don’t expect displaced workers will pull up stakes and leave the community. Most, they said, have strong ties to Janesville and Rock County.


“Some of the new home purchases that people were expecting might not take place, but it won’t be that 750 people will all of a sudden sell their houses and leave town,” Kruse said. “There will certainly be a short-term economic factor for everyone, but I don’t expect it will be a really huge thing for the housing market.”


Wellnitz said Janesville is a safe, comfortable town that continues to be a bedroom community for a much larger geographical area. He recently built a house in Janesville for someone who moved from Michigan to a job in Beloit.


Wellnitz and Kruse said tighter budgets might prompt people to remodel rather than build or buy new.


Randy Borman of Coldwell Banker Success in Janesville said he expects some downsizing in the housing market as people look at less expensive homes or take a GM buyout, move into retirement mode and buy condos.


“What we could see is some price pressure on the lower end of the market, those homes in the $100,000-$150,000 range,” Borman said. “That could provide some real values on the $150,000-$200,000 market, where things have been pretty inactive lately.”


Business retention

How the Janesville area approaches its latest challenges will go a long way in determining the community’s success or failure, said Deller, the UW-Madison professor.


“The community needs to look at this as an opportunity, not a threat,” he said. “It needs to say, ‘We can overcome this,’ and then roll up its sleeves and get to work.”


Deller said that work should revolve around business relationships that already exist in the community. Economic development groups, he said, need to get out and meet individually with existing businesses.


“They need to get out, say, ‘We’re glad you’re here. How are things going, and is there anything we can do for you?’” he said. “Those conversations build a sense of community and identify problems that need to be fixed.”


With a pipeline full of displaced workers, James Otterstein said local business and economic development leaders have their work cut out for them.


Relationships, both those that already exist within the community and those that could lead to new businesses, are critical, said Otterstein, Rock County’s economic development manager.


“We need to be ready to deploy when a project presents itself,” he said.


Doug Venable, Janesville’s economic development director, said there’s no quick fix to the impending layoffs and the short-term economic trouble it might create.


“We can hope that the sport utility market stabilizes and that gas prices drop,” he said. “Is that likely? If I was a betting man, I’d say no.”


Venable said city, county and state officials need to work with General Motors and the United Auto Workers to make sure the Janesville plant continues to have a product to build.


If that ultimately fails, the community needs to continue its efforts to diversify the local economy so it’s not as dependent on the auto industry, he said.


Often, Venable and Otterstein might not even know that potential new businesses are considering Janesville. That’s because so much legwork is done online before any official contacts take place.


“We do know that when a company does approach us, we can tell them that for every job they’re seeking to create, they’ll get eight to 10 résumés,” Venable said.


Often, Venable said, displaced workers come with state and federal training dollars that could appeal to a company considering Janesville.


Business recruitment

In its efforts to solve an immediate employment problem, Janesville needs to be careful, Deller said.


“There will be tremendous political pressure to do something big, get that big employer into town and get a picture in the paper of the ribbon-cutting ceremony,” he said.


Big projects are fine, he said, but the community must also focus on developing new small businesses.


That approach, he said, is particularly applicable now because some of the people who leave GM will do so with retirement or buyout cash in their pockets.


“I think there will be a large number that look at the situation and say now is the time to get out and do something different,” he said.


Janesville and other communities have a long history of small business start-ups that have grown into multi-million-dollar operations.


“A lot of these people are very smart,” he said. “They may have a great idea about a product or a service, but they’re just not good business people.


“That’s where outside help is needed, and the fact remains that most jobs in this country are created by small businesses.”


Is it better to get one new business that employs 100 people or get 10 new businesses that each employ 10?


Deller argues for the latter, saying the chances for long-term success and diversification are far greater.


“The real difficulty in judging how well Janesville will come through is predicting how the community will react,” Deller said.


“There’s a major psychological impact with this, and consumer confidence that already has been plummeting is probably at an all-time low right now in Janesville and Rock County.


“Attitude is huge. Is the glass half empty or half full?”



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