Friday 14 November 2008
GM collapse could set off chain reaction
Advocates for US carmakers are warning that the collapse of the Big Three - or even just General Motors (GM) - could set off a catastrophic chain reaction in the economy, eliminating up to three million jobs and depriving governments of more than US$150 billion in tax revenue.
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GM collapse could set off chain reaction
AP
14 November 2008
(DETROIT) Advocates for US carmakers are warning that the collapse of the Big Three - or even just General Motors (GM) - could set off a catastrophic chain reaction in the economy, eliminating up to three million jobs and depriving governments of more than US$150 billion in tax revenue.
Industry supporters are offering such grim predictions as Congress weighs whether to bail out the nation’s largest carmakers, which are struggling to survive the steepest economic slide in decades.
‘We’ve got to do this because the cost of inaction is so high to communities, to workers, to companies,’ said Senator Sherrod Brown, a Democrat. He was among many lawmakers worried that an industry collapse would be devastating for everything from school districts to small businesses.
Even if just GM collapsed, the failure could bring down the other two companies - and even the US operations of foreign carmakers - as parts suppliers run out of money and shut down.
Concern about the carmakers hit new heights last Friday when GM and Ford reported that they spent a combined US$14.6 billion more than they took in last quarter. GM said that it could run out of money by the end of the year.
Ford said that it could last through 2009, but only because it arranged a hefty credit line last year.
All this comes after tight credit and economic uncertainty in October reduced US car sales to their lowest level in 25 years - with no rebound in sight.
A study by the Center for Automotive Research in Ann Arbor estimated that the failure of Chrysler LLC, Ford Motor Co and General Motors Corp would eliminate up to three million jobs, including those at parts suppliers and smaller businesses that rely on the carmakers.
State, local and federal governments would lose more than US$150 billion in tax revenue over three years, the study said.
Next week, Congress plans to consider giving the car industry part of the US$700 billion Wall Street bailout during a lame-duck session.
Opponents of the idea said that government money will just delay the inevitable demise of companies that are on death’s doorstep because of years of mismanagement and labour costs that are far higher than their global competitors.
‘How is this money going to make a positive difference in creating a new competitiveness?’ asked Senator Jeff Sessions, a Republican.
Mr Sessions and others also feared that opening the treasury to carmakers will invite more industries to plead for federal help.
‘Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?’ said Mr Sessions, who also opposed the Wall Street bailout.
Carmakers said that they are poised to rebound because they have been restructuring for years - shedding jobs, consolidating engineering and design, and making plants more efficient. The Big Three have cut their combined US hourly work force more than 40 per cent since 2005, from 244,000 to about 139,000.
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