Wednesday, April 08, 2009

ProActive Rants: Put the Breaks on Big Auto Bailouts

ProActive Rants: Put the Breaks on Big Auto Bailouts

2 comments:

siegfried said...

Blackmail is not good for competition- why not give the money to the purchasers instead

Some things worse than cash-guzzlers Posted By GREG WESTON

As General Motors and Chrysler career down the road towards possible bankruptcy, Canadian taxpayers fuelling these cash-guzzlers might be excused for wondering where it will all end.

A recent study suggests that those who would be content to see it end with the end of the Big Three automakers in Canada might want to wake up and smell the motor oil.

For starters, the study conducted for the Ontario Manufacturing Council predicts almost three million workers would lose their jobs at a public cost of over $60 billion just for employment insurance benefits.

Make no mistake: The bailouts being offered to the ailing auto giants involve unprecedented truckloads of public funds. So far, more than $12 billion of Canadian taxpayer loans have been promised to GM and Chrysler operations in this country. Think of it as an average family of four lending the two carmakers about $1,400 with no guarantee of repayment.

This week, Industry Minister Tony Clement upped the ante again, promising an additional $700 million in aid to auto-parts companies owed money by the Big Two, and which would probably be stiffed in bankruptcy proceedings. Clement also put taxpayers on the hook for an estimated $185 million in warranty repairs on GM and Chrysler vehicles if either firm went under. All of which has prompted a growing chorus of critics pushing governments to bail taxpayers out of the bailouts, and let the car companies crash if necessary.

But the study for the Ontario government's manufacturing council suggests the road to Canadian automaking oblivion would be paved in far more taxpayer misery than would any rescue plan so far contemplated.

The study was completed last fall, and is therefore based on much rosier pictures of both the auto industry and the overall economy than exist today.

Even at that, its language is foreboding: "The economic implications of a complete shutdown of the Detroit Three's production are staggering." The loss of 30,000-odd salaried jobs at the three automakers would be just for starters. The study predicts the ripple-effect would wipe out almost another 300,000 Canadian jobs in the first year, and a stunning 582,000 more -- per year -- over the four ensuing years, almost three million in total.

The Ontario economy would be hardest hit, losing 4% of all the jobs in the province just in the first year.

Even if production of the Big Three is only cut in half, the study predicts "dire" and lasting consequences for the Canadian economy. More than 150,000 jobs would vanish in the first year, and almost 300,000 more a year until 2014 -- in total, over 1.3 million workers put on the streets. Under either scenario of a full or partial meltdown, the study projects that the impact would be everyone's problem.

Indeed, only a third of the projected employment losses in the first year would be in manufacturing, while almost as many jobs would evaporate in wholesale and retail trades. It only gets worse in subsequent years as "the construction sector contracts the most sharply with employment declining almost 9% a year."

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In the end, the study predicts a tanking of everything from immigration rates to the disposable incomes of ordinary Canadians. The impact on the public purse would be disastrous, more than doubling the $65-billion deficit the Conservative government is predicting for the next two years.

Finally, the really bad news: "As large as these impacts are, it is quite likely that the job losses presented in this analysis are conservative." Bottom line: No matter how repugnant bailing out GM and Chrysler may seem, driving them to the junkyard might well be the country's road to economic ruin.

Anonymous said...

I am sure that the horse and buggy whip manufacturers said the same thing. Why are we penalizing the car manufacturers who are producing and selling products that people want? Economic reality is that they should take the fat out of the system through market competition.