Big 3 bailout: Ripple effect of inaction could cripple the US economy

by Tina Kells | November 18, 2008 at 12:12 pm

3285 views | 23 Recommendations | 10 comments

The Big 3 automakers are asking Washington for bailout money and this has caused a tizzy of controversy, but the bottom line is that the ripple effect of government inaction could cripple the US economy and be felt around the globe.

General Motors (GM), Ford and Chrysler are the Big 3 US automakers and combined they pump $156 billion in to the US economy every year. A YouTube video released yesterday by GM breaks down the mystery and lays some scary facts on the line. The US economy is more dependent on the auto industry than many people realize.

According to CNN if the Big 3 bailout is rejected by Congress the impact on the US economy would be devastating. When you combine the possible job cuts within each of the Big 3 automakers with the job losses in the satellite industries of car dealerships and auto parts suppliers the number of people poised to make jobless claims is a staggering 1.6 million.

1.6 million jobs lost if the Big 3 automakers do not get bailout funding. That is more than three times the already uncomfortably high rate of jobless claims filed in the US last quarter. When those two figures are combined the US economy could be burdened with more than 2.2 million unemployed people by the end of the year. The impact of this number of unemployed people on other industries, and the economy in general, would be overwhelming.

A recent CNN report broke down the potential job losses by company and sector and it is the support industries that would suffer the most. Some estimates show that for each Big 3 auto manufacturing job there are 7.5 "spin off" jobs in support staff and other industries. Should the Big 3 automakers be denied bailout funding jobs would be lost across the board as follows:

GM - 120,000 jobs lost
Ford - 80,000 jobs lost
Chrysler - 66,000 jobs lost
Auto Dealerships - 740,000 jobs lost
Suppliers - 610,000 jobs lost

This totals 1,616,000 unemployed people if US automakers are left without bailout funding. In 2007 AIG directly employed less than one-tenth of that number, 116,000 people. AIG has already received $150 billion in taxpayers dollars, or more than 20% of the total $700 billion earmarked in the bailout bill for corporate assistance. The automakers are only asking for $25 billion in total.

There are other costs to consider when thinking about the financial devastation that awaits the US should the Big 3 fold. GM and Chrysler combined have 625,000 pensioners that depend on the companies to live through retirement. These are workers that paid in to pension funds all of their lives; they too stand to lose if the Big 3 are not helped.

The true impact on the US economy of NOT bailing out the Big 3 automakers is unimaginable. At the height of the Great Depression 11,385,000 people were unemployed. This amounted to almost 25% of the total workforce at the time. If the Big 3 are left to declare bankruptcy the US could be put well on its way to repeating Great Depression era levels of unemployment.

The people who would be affected by the ripple effect of such an industry failing.

I've been around long enough to know the U.S. economy goes the way of the auto industry. Ford, GM and Chrysler account for more than 15 million jobs total between the multitude of functions that make up this industry.

It's not just the people who build the car. It's the people who wash it, the people who fix it, the people who ship it, the people who make the tires, the fan belts, the replacement parts, the local people who work in your neighborhoods who sell and service the cars.

This economy cannot afford this loss, and it is not their time.

At the height of the Depression in 1933, 24.9% of the total work force or 11,385,000 people, were unemployed. Although farmers themselves technically were not unemployed, drastic drops in farm commodity prices resulted in farmers losing their lands and homes to foreclosure.

The requests have come as General Motors and Chrysler LLC are burning up cash because of an auto industry sales meltdown due to the U.S. economic downturn.

Perino said the "decisions about their futures - and potential mergers - will be decided by them."

Yet industry analysts say government funding might be necessary to seal a deal because of the difficult economic conditions and frozen credit markets.

The Bush administration and Congress would have an interest in the automakers' survival because of the magnitude of the pension obligations it would face in a bankruptcy and the potential for massive job losses.

Chrysler employs about 49,000 in the U.S. and has about 125,000 pensioners. GM has 177,000 U.S. workers and around 500,000 people receiving pensions.

The Center for Automotive Research in Ann Arbor, Mich., estimates that for each auto manufacturing position, there are 7.5 jobs with parts makers and other companies, meaning the industry accounts for millions of jobs.

Any role by the government in a GM-Chrysler deal would face scrutiny from Congress because it would likely lead to significant job losses as the companies combine operations.

The White House is focused on two major options to aid the industry, Perino said. They include the $25 billion in government loans approved by Congress for fuel-saving technology and money to free up credit through the $700 billion Wall Street bailout.

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zarnzook

at 14:11 on November 18th, 2008

This is a 1957 Continental Mark II in front of the Continental HQ in Michigan. This car was manufactured by Ford in 1956-7.

zarnzook has contributed a photo to this story.

MasterGeorge

at 15:17 on November 18th, 2008

Photo I took of one of the dealerships in the Prince Frederick area, with big groups of unsold trucks and suvs piling up.

MasterGeorge has contributed a photo to this story.

forthebetta

at 16:28 on November 18th, 2008

people in MI are on the edge. if it wasn't so cold, i'd say there was a possibility of rioting.

NKAWTG

at 16:30 on November 18th, 2008

Let them fail. It's the only way to flush the dysfunctional boardrooms. Failing does not mean millions loose their job, they go into Chapter 11. A bankruptcy judge oversees operations. The big three can get back on their feet, get leaner and stronger by chucking the unions.

mike_yvr

at 21:44 on November 18th, 2008

And what about health insurance for many American families? In a country where 49 million are uninsured, GM provides health coverage to about 1.1 million employees and retirees. That makes it the single biggest supplier of health insurance in the U.S.

And health insurance for workers in auto sector-dependent industries would also be at risk if massive job losses occur.

Uwe Paschen

at 07:24 on November 19th, 2008

An end with a chock is far better then a chock with out end.

Inaction can be worth and more damaging then making a mistake and having to change course down the road with an action.

Sbarn134 (not verified)

at 17:45 on November 19th, 2008

I'm a 20 year old college student that works at a GM dealership. And I have worked in 3 dealerships (all GM) for the past 5 years... since I was a sophmore in highschool. Beside trying to plead a personal sob story, the bottom line is that the goverment bailed out the banks even though they got in that mess because of bad management and bad decisions, as well as nice big bonuses and paychecks for their higher ups. Now that the big 3 need help, they want to start trying to talk crap about the big 3 and their managing/marketing decisions. And what they don't want everyone to know is that the Big 3 were promised $25 billion already, but originally they weren't going to see it until roughly 2010. All they want is the money now, so they can continue to operate and design/produce their new energy effecient cars and progress more towards the desires of the American people. And they are in no way shape or form asking for free money. They will pay this back. If they don't do something soon, they will all go bankrupt and leave a staggering number of people unemployed.

Blue Crush

at 18:25 on November 19th, 2008

CNN showed a clip today, about the CEOs flying their private jets to Washington. Rep. Gary Ackerman said, "couldn't you have jet-pooled or something?"

http://www.cnn.com/2008/US/11/19/autos.ceo.jets/index.html#cnnSTCVideo