Bailout Or Not, Taxpayers Lose

Auto Industry Collapse May Be Just As Costly As A Rescue Package

(CBS/AP)  The U.S. auto industry's problems will cost taxpayers plenty whether or not the government helps Detroit.

Just walking away and letting the struggling Big Three automakers go under would drain government coffers by about as much as the $15 billion bridge loan that lawmakers are preparing, and perhaps much more, according to outside analysts. The costs would come from lower tax collections by the federal, state and local governments and the payment of extra unemployment, pension and other benefits to unemployed or retired auto workers.

An agreement on the $15 billion bridge loan was reached late Tuesday night following a two-hour conference call between congressional and White House staffers, who went over the 35-page proposal line by line, reports CBS News correspondent Thalia Assuras

But passage among lawmakers remains a potential stumbling block. Sen. Bob Corker, R-Tenn., indicated he would not support the bailout during an appearance Wednesday on CBS' The Early Show.

"It's as if the administration has snatched defeat from the jaws of victory," he said.

Corker said Congress has missed an opportunity to take a more forceful role in the auto industry's restructuring, particularly in terms of reducing General Motor's massive debt.

"If the U.S. government is going to be a lender, let's make sure we get [GM's] balance sheet straight on the front end," he said. "Once U.S. tax dollars start going into these companies, it's going to be very difficult to cause that to happen."

And many are concerned that the $15 billion represents just a down payment on what may become a much larger package.

"If you give them the cash, they'll do what they have to to get it from you and you'll find they'll be back over and over again," University of Maryland economist Peter Morici told CBS News. "This is gonna cost you hundreds of billions of dollars - get ready for it."

There's sharp disagreement among outside experts about exactly what an auto industry failure would look like and how much it would cost taxpayers. But what's clear is that while no one knows how much government aid the Big Three will ultimately need, inaction would also be expensive, assuming automobile production drops and more workers lose their jobs.

"It's possible to push arguments like this too far, but there is still a net cost" to government without taking action, said Lou Crandall, chief economist for the bond market research firm Wrightson ICAP in Jersey City, N.J. "The question is whether the social objective you're pursuing is worth that net cost."

The Center for Automotive Research, a non-profit organization in Ann Arbor, Mich., estimates that if Ford Motor Co., General Motors Corp. and Chrysler LLC completely stopped making cars next year but returned to 50 percent production levels in 2010 and 2011, it would still wipe out nearly 2.5 million jobs next year.

The center, which gets a small portion of its budget from auto companies, says 239,000 of those jobs would come from the Big Three, 795,000 from their suppliers, and 1.4 million from other jobs created by the spending of auto workers and suppliers' employees. The number of lost jobs would decline to 1 million by 2011 as the Detroit companies resume work, foreign automakers in the U.S. expand their production, and some laid-off workers find other jobs.

Overall, that lost employment would cost government at all levels $50 billion next year and $108 billion over the next three years, the center estimates, with Washington bearing most of that cost. Almost a quarter of the money would be for unemployment, welfare, health care and other costs government would have to carry, while the rest would come from lost collections of income taxes and payroll taxes that support Social Security.

In a more severe scenario in which the Big Three halted all U.S. operations completely, the three-year cost to taxpayers would be $156 billion in lost tax revenue and higher spending, the center says.

"Without question" it would cost the government less to give the Big Three a loan than to watch them curtail production, said Sean McAlinden, the research center's vice president for research. "That's better than taking this huge tax and transfer payment hit."

The conservative Heritage Foundation, however, says such projections are far too dismal.

William Beach, a senior fellow in economics at the thinktank, says it is likelier that the Detroit automakers would declare bankruptcy but continue reduced operations as they try to re-emerge as leaner but stronger companies. During this lull, foreign auto companies in the U.S. would see their sales increase and would hire additional workers, cushioning much of the blow to government budgets.

The result: 453,000 lost jobs in the first year from the Big Three, their suppliers and spin-off jobs, Heritage estimates. Beach said this would mean a 2009 cost to federal taxpayers of just over $13 billion: $12.7 billion in tax collections and nearly $600 million for unemployment insurance, food stamps and other expenditures.

"The impact is significant but not large," Beach said. "The government has well-developed programs to handle things like this."

Two Michigan consulting firms say an automaker bankruptcy would be four times more expensive to taxpayers than a government bailout that allows the companies to restructure.

If two of the Big Three declare bankruptcy and are forced to liquidate, federal and state taxpayers would lose $66 billion in the first two years alone, according to a study by Anderson Economic Group of East Lansing, Mich., and BBK, a business advisory firm in Southfield, Mich. That scenario - which envisions the loss of 1.8 million jobs - includes costs of $20 billion in lost federal income taxes, $21 billion in payroll taxes, $6 billion in state income and property taxes, and $5 billion in unemployment benefits.

A $30 billion loan in which half is repaid and the government gets a stake in the companies would cost $16 billion, with far less in lost revenue and higher spending to support unemployed workers, the firms predicted.

Warily eyeing the auto industry's problems is the Pension Benefit Guaranty Corp., the federal corporation that insures the defined-benefit pensions of 44 million American workers, including autoworkers.

Even without a failure in Detroit, the PBGC has about $11 billion more in liabilities than it holds in assets. In an interview, Director Charles E.F. Millard said the red ink could grow, depending on what happens to the automakers' pension funds.

"It's possible that in a bankruptcy scenario, the deficit of the PBGC could more than double," he said. "It's also possible the PBGC would not be affected."

The PBGC receives no taxpayer funds and is financed by fees on the companies it insures and other sources. A dramatic worsening of the corporation's finances, along with growing numbers of people drawing pensions from it, might force lawmakers to consider taxpayer assistance.

[ctla567]

mrs premise (Dec 10, 10:14 am) should be paid minimum wage until her job is taken away by an illigal worker. Poor mrs premise either doesn''t need a job or assumes her job is safe. No body''s job is secure unless the job belongs to a higher up executive. In that case she is paid millions while she pay her employees minimum wage and employs illegals. An executive is paid millions even if he or she is fired. Chrysler''s chief, Narelli, was fired from Home Depot a few years ago and he got $210 million.

[lilly1232]

I read these blogs and all I hear is name calling of each other, the political parties, and the auto companies. But I have yet to hear any intelligent ideas as to what would help the situation this country is in. One of the things that has hurt this country the most is the so called "world Market". It has allowed our country to be flooded with merchandise from other countries, but they dont want our. What, if you can tell me is open about that. Then our very own businesses were allowed to move their corporate head quarters off shore there by cutting thier tax base, while still being able to see most of there goods in this country. And you should also look up how some this these companiet opertate with out a union. I for one think it borders on criminal. So you people that are for getting rid of unions, becareful what you wish for

[ahrats]

the present Republicans in congress gave AIG and the big banks all the money they wanted with no strings attached now with the automakers they want conditions? You think the out going republican congressmen and sentors give a dam if some middle class person looses their job to join the 500,000 that have arerady lost their job under this administation. If the govenment is willing to let the big automakers go down then the big banks and AIG should go down with them, no bailout money for anyone. What is AIG''s and the Bank plan for restuctring? The present govenment is a joke but we have to wait till jan 20th to change anything.

[staplesla]

No bailout for the automakers. I hear it argued that this will save jobs but it won''t. Do people really believe that these companies won''t have to restructure and consolidate (layoff people) even with money. These companies will layoff people regardless.

Contact Congress and tell them to vote NO. It''s not too late.

http://www.visi.com/juan/congress

[whitemale08]

EXTERMINATE THE PARASITES FROM AMERICA!!!!

SHUT-DOWN THE ''LOOT FUNDS'' HEDGE-FUNDS'' ''BUY-OUT-FIRMS''!!!!

SHUT-DOWN THE LOOTING FIRMS NOW!!!!

[whitemale08]

THE BAILOUT IS FOR PARASITES LIKE CEREBRUS CAPITAL!!!

NO BAILOUT UNTIL THESE HEDGE-FUNDS AND ''BUY-OUT-FIRMS'' ARE SHUT-DOWN!!!!!

WE MUST SHUT-DOWN THESE BLOOD SUCKING HEDGE-FUNDS AND ''BUY-OUT-FIRMS''!!!!

THEY ARE LOOTING THE COUNTRY WITH THESE BAILOUTS!!!!

CALL CONGRESS AND TELL THEM TO ''STOP THE LOOTING''!!!

[nothappyatall]

So what, they are going under anyway, 3 months or 6 months isnt going to make ny difference- people are NOT buying cars after Xmas bills come in either.

[lovegetpeace]

Posted by omega40 at 05:02 PM : Dec 10, 2008

In which nation are your underwears made?

[omega40]

Mrs China says:

Bailouts are the way to go !!
China is the answer - Communism !!!

LMFAO !!!!

HAAAAAAAAAAAAAAAA!HAAAAAAAAAAAAA

AAAAAAA!

Posted by firehose12


The "communists" in China have been enjoying GDP growth of about 10% annually.

The capitalists in America had to borrow the money from the successful Chinese so they could buy a pot to piss_ in.

See where this is going?

[lovegetpeace]

Folks,
I enjoy reading here how MAD and Desperates the NeoCons are after their lost this pass Nov 4, 2008. They need to seek professional help before it is too late.