GM Collapse at $200 Billion would exceed baiout tab
Tough days ahead, auto giant is going to halt the US economy if projection made proves right, and possibility of that cannot be denied.
General Motors Corp, burning through cash as sales slump, would cost the government as much as $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated.
A GM collapse would mean ``more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,'' Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said yesterday in an interview.
Behravesh's projection of $100 billion to $200 billion in costs dwarfs the $25 billion industry bailout plan that will be debated in Congress next week to prop up Detroit-based GM, Ford Motor Co. and Chrysler LLC. The drain on taxpayers from a rescue or a GM failure is a central issue for U.S. lawmakers.
Included in the Global Insight estimate, are the anticipated costs for existing programs, such as unemployment insurance, and new measures that the economist said would be needed to revive economic growth after millions of auto-related job losses.
A GM shutdown would wipe out jobs among suppliers as well as at the automaker itself, pushing the U.S. unemployment rate next year to 9.5 percent, compared with current projections of as high as 8.5 percent, Behravesh said.
GM said Nov. 7 it may not have enough operating cash by year's end, and would be ``significantly short'' of its needs by June unless it adds capital or the U.S. auto market recovers from its worst sales year since 1991. GM had $16.2 billion on hand as of Sept. 30, down from $21 billion at the end of June, and needs $11 billion to pay its monthly bills.
While some investors including Wilbur Ross say a GM bankruptcy would be a ``real mess'' that would end in liquidation, others such as hedge-fund manager William Ackman say there is no need for taxpayer funds and that GM should reorganize in court.
``A bankruptcy wouldn't address our immediate liquidity concerns,'' said Renee Rashid-Merem, a GM spokeswoman. ``It's not an option for GM because it creates more problems than it solves.''
The Center for Automotive Research projects that federal, state and local governments would lose $108.1 billion in taxes over three years in the event of a 50 percent reduction in U.S. automaker operations.
Job losses would total 2.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing, the Ann Arbor, Michigan-based group said in a report on Nov. 4, three days before GM disclosed its cash drain.
GM climbed 6 cents to $3.01 yesterday on the New York Stock Exchange. The shares have tumbled 88 percent this year.
The 15 percent slump in U.S. auto sales this year through October is overwhelming years of cost-cutting efforts at GM. The company has eliminated 46,000 U.S. jobs since 2004, when it last posted an annual profit.
``The health of the heartland of America would be devastated'' should GM stop operations along with many suppliers, former Michigan Governor Jim Buchanan, a Democrat, said yesterday in an interview. ``The loss of revenue to the federal government and the states would be horrendous.'
``It would be a big tragedy, but not like some estimates,'' he said.