18 November 2008

Why letting the domestic auto industry collapse is problematic.

"There is no denying that the risks of letting GM fail are high. Economists warn that if it fails GM is more likely to end up in Chapter 7 bankruptcy liquidation than a Chapter 11 restructuring. Given the current credit crunch the traditional bridge loans available to companies in Chapter 11 are all but impossible to obtain. And few consumers would be likely to buy a car — which depends on long-term warranties, service and parts — from a company in a bankruptcy reorganization. The Big Three and their affiliated suppliers account for 2% of the U.S. workforce, or more than 2.5 million U.S. jobs. GM alone employs over 100,000 workers, the same number of autoworkers that have been laid off so far this year. And that's not to mention the hit the federal government would take when GM dumps its pension, insured by the quasi-governmental agency, the Pension Benefit Guarantee Corp.; with nearly a million participants, it is the largest private defined-benefit pension plan in the U.S. Some experts estimate that that hit alone could cost the taxpayers more than $100 billion, with another $100 billion in lost tax revenues and $10 billion in increased Medicaid expenditures annually."


The Honourable Husband said...

Look after pension obligations. Look after healthcare. Redesign and re-tool a vehicle fleet that is out moded and inefficient. Keep as many of the current workforce in jobs and healthcare (not McJobs and no healthcare) in a sustainable way for the forseeable future. And not harm the planet.

Can a for-profit institution achieve what needs to be done?

G in Berlin said...

Actually, I think it may be time for a New Deal and a Great Society. But as I said to the German yesterday, let's not let them collapse before we have figured out how to deal with food, shelter and healthcare for the millions of workers impacted.

Anonymous said...

What's good for GM is good for the country, as they used to say, but I think everyone's looking at the case of British Leyland and how they dumped billions into it, yet still it managed to die.

The problem is serious overcapacity worldwide, and the wrong product being made in the US. Just rescuing the domestic industry isn't going to change the fact that there are too many vehicles around and too few buyers. This shake-out's been a long time coming and it's only beginning.