November 17, 2008

GM to Washington: Loan $25B now or lose $150B later

If General Motors fails, nearly three million jobs could be lost in 2009 as part of a cascading collapse of suppliers, shipping companies and ultimately dealers. So argues General Motors in a video released as the embattled automaker campaigns for immediate federal aid in the wake of a cash-flow crisis.

Released on Sunday, GM's four-minute video highlights the fact that American auto industry is one of the largest economic multipliers in the U.S. economy. GM employs more than 1.7 million people, either directly or through parts suppliers, subcontractors and dealers.

The key argument is that if either GM, Ford or Chrysler fails, the industry would be faced with an imminent collapse due to the impact on suppliers and the cascading effects of production lines being halted and workers laid off at every level of production.

All told, as many as three million jobs could be lost if one or more the Big Three automakers fail. GM argues that in such a scenario, with no cars being made or sold, as much as $156 billion in tax revenue would be lost between 2009 and 2011.

And the economic catastrophe wouldn't stop there.

Add in the cost of supporting 775,000 retirees currently drawing a GM pension. And the health care costs of 2 million people who would find themselves uninsured if GM were to fail.

A collapse of the U.S. auto industry would reduce personal incomes by $150.7 billion, the automaker warns. Over three years, the cost could grow to $398 billion in unemployment assistance, as people struggle to find new work.

By every measure, the damage from a collapsing US auto industry will reach far beyond the industry itself.

The nation's auto industry is a major contributor to our gross domestic product -- nearly four percent in total.
According to the Center for Automotive Research, our current recession was fueled by three-tenths of a percent decline in GDP. If GM alone is left to fail, a sudden one percent loss in GDP could easily trigger panic, turning a recession into a depression.


No comments:

Post a Comment

Be the first to share your thoughts on this article!