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Argument: US auto bailout is better than the more costly alternatives

Issue Report: Bailout of US automakers

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Steven Pearlstein. “The Road to a Bailout They Don’t Deserve”. The Washington Post. 3 Sept 2008 – “If one of these companies is forced into bankruptcy, the other two are almost certain to follow, resulting in massive layoffs and plant closures, a hit to the incomes of millions of retirees and another body blow to wounded banks and credit markets that have lent the Big Three hundreds of billions of dollars. It would also dump tens of billions of dollars in pension liabilities on the federal government’s pension guarantee agency.”

“Editorial: Auto Bailout; The alternative is worse”. Philadelphia Inquirer. 23 Nov. 2008 – “The frustrating part about auto executives’ presumptuous attitude toward a taxpayer bailout is that they are probably right — they are too big to fail[…]here’s the problem: a collapse of the domestic auto industry will cost the public much more than a short-term bailout.

[…]A liquidation of GM could cost the federal government as much as $200 billion in unemployment benefits and other aid to such states as Michigan, Indiana and Ohio.

Federal, state and local governments would lose tens of billions in tax revenue. And the federal government might be on the hook for pension costs and health benefits of workers who lose their jobs.

Job losses from the failure of one automaker could total 2.5 million, a shock that this slumping economy can’t absorb.

Lending the Big Three $25 billion now would be worth the expense, if it staves off those dire forecasts. The question is how to ensure, to the extent possible, that a bailout helps to get the companies back on their feet permanently.

“Why auto firms must be helped”. Toronto Star. 22 Nov. 2008 – the risk of not acting is even greater [than the risk of acting]. The auto sector accounts for one in every seven Canadian jobs, directly and indirectly. This includes not just the 550,000 people working for assembly plants, parts manufacturers, and car dealerships but also hundreds of thousands of Canadians in banking, mining, steel, aluminum and other industries that supply and support the sector.

Those workers are also taxpayers. Take away their taxes, and federal, provincial and municipal treasuries will suffer a major hit to their bottom lines while at the same time they have to pay more for Employment Insurance, welfare, and pension protection.

Roger Layne, CEO, East Tech Company, a Chattanooga, Tenn.-based maker of high-tech machinery for the automotive and construction industries: “I agree with the bailout. I don’t think there is another option.”[1]

Kate McLeod. “Help Detroit!”. Wow O Wow. 2 Dec. 2008 – We’ll have to spend a lot more than $25 billion in unemployment compensation, Medicaid and Medicare and retraining — not that retraining really works — and support to the states when the domestic industry shuts.