The Auto Bailout: What It Means for Older Workers

Should America’s automotive industry ever get its bailout, the crippled industry is virtually certain to shed thousands of jobs in a major restructuring effort that could hit older workers hard.

Industry watchers say that many older employees will likely be targeted in a reorganization by the automakers to make way for younger, less expensive hires. An early retirement—whether forced or otherwise—means a significantly lower monthly pension benefit for employees than if they’d worked until retirement age. Of the estimated 730,000 employees working directly in the industry, nearly one-fourth—some 189,000—are age 55 or older.

“This is going to hit workers in their 40s and 50s who were counting on their higher salaries in their final years to boost their pension benefits,” says Rich Johnson, principal research associate for the Urban Institute. “Those extra years of service add a percentage to their pension for every year they work. Now they’ll lose all those future benefits.”

The scenario would be worse if the auto industry collapsed and halted production. According to the Center for Automotive Research, nearly 3 million jobs would be lost, including nondirect supplier jobs and spinoff jobs in local restaurants and retailers, which suffer when consumer spending is down.

A bankruptcy filing could also result in the termination of employee and retiree pensions. Some experts say that the enormous burden of taking over those payouts could “blow up” the federal Pension Benefit Guaranty Corp.—a proposition that may have helped to sway Congress to offer a bailout.

No matter what happens, Steve Sass, associate director for research at the Center for Retirement Research at Boston College, says that workers in the auto industry must abandon the expectation of retiring comfortably in their late 40s, 50s and early 60s, after they’ve put in the 30 years of service required for retiree health coverage and a lifelong pension.

“That’s part of the financial burden on the industry—financing these long retirements of people who really could work,” Sass says. “It’s gotten more expensive as people live longer. The burden on the [pension] providers is overwhelming.”

A tough climate for finding work

As economic conditions deteriorate and the unemployment rate catapults to a 15-year high of 6.7 percent, older workers who lose their jobs face an especially daunting challenge, experts say.

For one thing, it’s unlikely they’ll find jobs that pay anything close to what they were making at the Big Three—and it will take longer to find work. Jobs will be scarce in communities where automakers are the major employers. And older workers will be competing with younger, less experienced and less expensive candidates for jobs from a much smaller pool.

Even those fortunate enough to get a job offer from out of state will find that the depressed real estate market may make it hard to sell their home and move.

“If you’re age 52, you were expecting to save for another seven years and retire at 60. You weren’t expecting the market to drop 35 percent in the year you were retiring,” says financial planner Mike Rubino, CEO of the Rubino Financial Group in Troy, Mich.

“Keep looking for work and lower your standard of living,” he says. “The goal is to try to find a job as quickly as possible so you don’t deplete the assets you’ve accumulated for retirement.”

Today’s downturn seems to be less taxing for workers age 55 to 64 than for older adults, says Johnson of the Urban Institute. Although unemployment for the younger group rose 1.6 percentage points to 4.6 percent since December 2007, that compares favorably to the downturn in 1981-1982, when the rate climbed 2.6 percentage points to 6 percent.

But for workers age 65-plus, the unemployment rate jumped higher during this recession—up 1.3 percentage points since last December to 4.6 percent. By contrast, unemployment grew by less than 1 percentage point during the 1981-1982 recession.

What’s more, Johnson says, those who lost their jobs back then had more generous Social Security benefits relative to wages, meaning that Social Security covered a greater portion of lost income than it does today. Health care costs were also lower then and more people had traditional pension plans to soften the blow.

An emerging desperation

Bob Skladany, the chief career coach at Retirementjobs.com, says that he expects some older workers in the automotive industry “to have a soft landing” after a buyout offer and 48 weeks at virtually full pay. But then, he says, they’ll “hit the wall.”

“They won’t be able to earn even half of what they’re used to, if they can find work at all, because the bulk of jobs available in this economy are minimum-wage jobs,” he says. “And oh, by the way, it’s not four to five weeks off and 12 sick days” at a new job. “They’re losing tremendous other benefits.”

The gloomy landscape for job-seeking older folks, combined with deep stock market losses, has brought an “abrupt” jump in traffic to Retirementjobs.com—from 250,000 a month in July to more than 525,000 a month. Many of those users were retirees looking to return to work when their nest eggs got decimated.

“We believe there’s a very large increase of retirees returning to work and a very large increase in the number of older workers who were laid off,” he says.

Skladany has also noticed that people have started seeking different sorts of advice from the experts at the site. “The desperation level in the questions we get has increased dramatically. We’ve gone from normal questions to ‘If I don’t get a paycheck within two weeks, I’ll lose my house,’ and ‘I can’t pay my health care anymore.’ ”

The situation isn’t that bad for James Mead, 59, a former purchasing manager who got downsized from a GM parts supplier in Michigan last May. But he’s worried. He’s had 18 job interviews and no offers yet. He’s also down to just five more payments of unemployment benefits.

“I cashed out part of an IRA so I can draw off that for a year,” says Mead, who is willing to relocate for another managerial position. In fact, he has a job interview lined up 900 miles away in South Dakota next week.

“I would like to work for another six years,” Mead says. “I’m not ready to retire.”

Carole Fleck is a senior editor at AARP Bulletin Today.