Auto industry bankruptcies could ripple through tech

The auto industry has been offering US lawmakers an apocalypse-level scenario warning them that as many as three million jobs could disappear if automakers run out of cash.

The big three US automakers employ about 24,000 engineers alone across all disciplines, including those that are IT-related, according to data compiled by the Center for Automotive Research in the US, which is forecasting hard-to-imagine job losses and economic impact if automakers shut down . The three-million job loss estimate includes everyone working directly for the US automakers as well as their suppliers and other spin-off businesses.

It is those numbers that explain why President-Elect Barack Obama and some congressional leaders are seeking billions of bailout dollars to keep the automakers out of bankruptcy.

For tech workers, a wave of bankruptcies in the auto industry would hurt, as well. Market research firm IDC estimated that IT spending among all manufacturers in the US will total about US$88.5 billion next year, with the auto industry accounting for about 10 percent of that amount.

Much of the auto industry's IT spending comes from one company: General Motors (GM), which in 2006 awarded some US$7 billion in IT projects to a range of tech vendors, including Electronic Data Systems, which expected about US$1.2 to $1.4 billion in annual revenue from its deal, and Hewlett-Packard, which is getting US$700 million over five years.

Robert Parker, a group vice president of IDC's Manufacturing Insights subsidiary, believes automakers are seeking cost reductions from vendors. When it comes to EDS and HP, GM may have a case, he said.

In merging with EDS , HP officials said the deal would allow it to remove redundancies and streamline costs, and Parker said GM will likely want to see those benefits delivered to its bottom line, as well.

Bankruptcy is a real fear among IT vendors that sell to the auto industry -- they worry that they'll get hit, too, said Kelly Thomas, senior vice president and general manager of manufacturing at supply chain vendor i2 Technologies. "Once they go into bankruptcy, it's very hard to get your money back," said Thomas.

For now, auto companies continue buying technology and rolling out projects, but they're putting off multi-year projects and have been reluctant to sign longer-term contracts, he said.