$15-$20 Billion Looking Cheap To Bailout Detroit.

Posted by: David Kiley on November 06, 2008

Fifteen billion dollars to sure up Detroit’s Big Three automakers is starting to look like a bargain.

On top of $25 billion in loans that the Department of Energy is moving to release to the the companies to offset costs associated with re-tooling plants, the Big Three is looking for at least $15-$20 billion in cold, hard cash in the form of long term loans without conditions.

The money would be used to offset operating losses the companies expect to face through 2009, and possibly early 2010 depending on how the economy behaves.

While many legislators and members of the public oppose helping the industry in this way, a report issued by The Center for Auto Research says the following:

“Should all of the Detroit Three’s U.S. operations cease in 2009, the first year total employment impact would be a loss of nearly 3 million jobs in the U.S. economy,” the report says. “In economic terms, the rapid termination … would reduce U.S. personal income by over $150.7 billion in the first year, and generate a total loss of $398.2 billion over the course of three years.” Lost tax revenue between 2009 and 2011 would be an estimated $156.4 billion.

“The scale of the contraction of the Detroit Three would overwhelm any attempt by the international producers” like Toyota, Honda and Nissan “to keep their existing suppliers in business or to find alternative suppliers, here or elsewhere,” the report says. “U.S. consumers would be forced to rely on only imported vehicles as a source of new vehicle purchases in the first year.”

I can understand how members of Congress outside the industrial belt have contempt for Detroit. Likewise, it’s not hard to see how people who wouldn’t buy a Detroit car unless all the Japanese and German companies stopped selling cars would be against it.

But the CAR numbers are compelling. CAR, based in Ann Arbor, MI, does work for and with the auto companies and suppliers. But that is only meant as a disclaimer. I’ve never met anyone who contested the integrity of the work CAR does.

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Reader Comments

Jordan

November 6, 2008 07:26 PM

This is exacly what most people do not fully understand! Very well said! If the US government does not intervene by offering $25-50 Billion in secured LOANS for all auto manufacturers, then the US Government stands to loose nearly $160B in tax revenue between 2009 and 2011. Clearly they must help! This is an easy business case!Think of all the innocent victims / US Citizens if the government does not help! Think of all the assocaited business that suffer, all the innocent people that loose ther jobs and likely their homes, not to mention the total impact on the economy! How can anyone ignore this!?

Mr.ArfARf

November 9, 2008 07:36 PM

I understand what Jordan and CAR are saying. But what does this mean? Just because people work for them we should infuse money as long as it takes? what if we put in 100+ billion over 4 years? I say let it take it's course. Yes it will hurt but we should not support something simply because people would lose jobs. Even if I loose my job I understand devoting my life to working in one sector is a false sense of security and unreliable. Think of all the loggers that are out of work? Should we have allowed clear cutting in national parks to keep their jobs? No.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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