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Argument: Failure of US autos would devastate supporting industries

Issue Report: Bailout of US automakers

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Bob Herbert. “‘Drop Dead’ Is Not an Option”. New York Times. 17 Nov. 2008 – But in the current environment, allowing one or more of the Big Three to go bankrupt would be like offering up your nose to Sweeney Todd to spite your face.

It’s not just General Motors or Chrysler or Ford. The U.S. auto industry is the cornerstone of American manufacturing. It supports millions of jobs, directly or indirectly, in a vast array of businesses.

Start with the thousands of parts in each vehicle. They are produced by suppliers across the country, from one coast to the other. Those supplies have to be manufactured, packaged and transported. Truck drivers, railway systems and shipping companies are involved.

And, of course, there are dealers everywhere. And the auto repair industry. And the insurance industry. And vast systems of advertising supporting every kind of job you can imagine, from messengers to accountants to filmmakers and beyond. All of that advertising funnels absolutely crucial revenues to television, magazines, newspapers — you name it.

If G.M., which is on life support, or Ford or Chrysler were to go bankrupt, the reverberations would kill the jobs of entire armies of American workers. It would undermine the standard of living of hundreds of thousands of families and shutter the entrances of untold numbers of small and intermediate businesses.

Matthew F. Pawa. “Saving Detroit – from itself”. The Boston Globe. 16 Nov. 2008 – “Letting these companies die also should be off the table. They employ more than 200,000 people. These workers, their company towns, the dealerships nationwide, and millions of other workers reliant on the automobile industry would face economic catastrophe if the companies fail. Taxpayers would likely pick up the costs of pensions and other liabilities. The social costs would be enormous.”

“US carmakers deserve another chance”. The Business Times Singapore. 18 Nov. 2008 – But for all their faults, letting the US carmakers go bust at this time would likely have devastating consequences. It could set off a chain of bankruptcies – of dealers, suppliers and ancillary companies across the United States. The effect on consumer and business confidence – already at a low – would also be shattering. No doubt, there are legitimate fears that a bailout would set off demands for rescue from other industries. But few are as pervasive across America as the carmakers. Moreover, Americans are no strangers to rescuing the car industry, having bailed out Chrysler three decades ago, and seen it rise again.

Ken Murer, Co-founder, APC Direct, a Chesterfield, Mo.-based advertising firm that creates direct-mail campaigns for car dealerships: “The auto industry is crucial to the economy because of all the independent mom and pop suppliers and dealerships that depend on it […] A total collapse would be catastrophic for all the dealers that have invested all their time and energy in building a nice business. And they are powerless to make changes at the factory.”(Inc Magazine, November 2008)[1]

Andre Gist, CEO, Manufacturer’s Industrial Group, manufacturers of welded assemblies and fabricated metals for the auto and construction industries based in Lexington, Tenn.: “As much as I don’t think it’s fair, I think it’s needed to help the entire industry. We’re tied together and bankruptcy would destroy a lot of suppliers that are not at fault. They have to make cost saving internally the same as suppliers. Too much pressure to control cost is pushed down to suppliers. There should not be any raises or bonuses until the loan is paid back. Everything launched after 2012 should make 40 mpg at a minimum[…]It would have an effect on me because a lot of my suppliers will be tied up, if not shut down if they cannot be paid. The banks may also decide to cut out of current financing if they’re concerned about getting their money back. The banks could shut us all down if they get nervous.[2]

Geoff McCollom, Co-owner, Dutch Valley Auto Works, a collision-repair shop in Lancaster, Pa. (Inc Magazine, November 2008): “The biggest thing is parts availability. Say if GM collapses and their dealers go out of business, there will be no more parts available. We’ll have to go to junkyards or aftermarket parts. And using aftermarket parts is its own can of worms. The parts are off — they just don’t fit as well. So if you came in with a fender dent, the insurance company would total the car, because the parts weren’t available and so they couldn’t fix it.”

“U.S. carmakers need help now, Missouri’s Sen. Bond says”. TMC News. 24 Nov. 2008 – (St. Louis Post-Dispatch Via Acquire Media NewsEdge) ST. LOUIS _ Four days after congressional leaders in Washington balked at bipartisan efforts for auto industry aid, Sen. Christopher “Kit” Bond of Missouri stressed the need for approving emergency loans to the automakers before the end of the year.

The Republican senator joined local automaker representatives, suppliers and government and school officials Monday in Fenton, Mo. _ less than two miles from the idled Chrysler minivan plant _ to highlight how the U.S. automakers’ troubles have affected the St. Louis area.

Bond estimated that about 220,000 jobs in Missouri depend on the auto industry, including positions at assembly plants, supplier plants and dealerships.

“We just can’t afford to lose those,” he said in a conference room at Lumbee Enterprises Inc., a quality-control company that works with Chrysler’s Fenton plants.

Daniel Gross. “In Defense of Detroit”. Newsweek. 13 Nov. 2008 – “because of its size and the place it occupies in the supply chain, the failure of GM would likely trigger the bankruptcy of hundreds of suppliers and other companies that rely upon GM.”

Bob Chaffin. “Failure to help Detroit 3 would affect 50 states.” Tennessean. 30 Nov. 2008 – Finally, we all need to note U.S.-based companies have 105 assembly and component plants in 20 states, including Kentucky and Tennessee. They purchase $156 billion in parts, materials and services, supporting millions of jobs in all 50 states, and as these suppliers are dependent on the survival of all three, a collapse by one would be likely to bankrupt hundreds of suppliers and stop flow of parts to the other two.

The overall fact is that a government bridge loan will enable the domestic automakers to continue as an engine for prosperity and as a creator of both vehicles and technologies that America needs. Millions of jobs will be saved and enormous benefits will result for years to come. Hold their feet to the fire for a plan prior to receiving one penny in taxpayer money. They expected that, they just did not expect to be required to produce a plan at the initial hearings.