What Does It Mean When the U.S. Automakers Fail?
Was your reluctance to buy a car from one of the three major U.S. automakers, General Motors Corp., Ford Motor Co., or Chrysler LLC, the cause of their imminent collapse?
The Big Three automakers are asking Congress to pass legislation for government-backed loans. They may just get half of what theyre asking up to $17 million as opposed to $34 million. What the automakers want Americans to know is that what theyre really asking from the federal government is a three-year bridge loan that will be paid back with interest and not a bailout to continue their operations.
Congress' initial response was to allow the three U.S. automakers to fail, or go bankrupt. Its was an unsympathetic hard line toward a dire situation that has ignited anger and contempt among the auto industry. Congress sees bankruptcy as a way to restructure the companies.
But Ron Gettelfinger, President of the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America, claims As previously indicated, research has indicated that the public will not buy vehicles from a company in bankruptcy. According to the Big Three automakers, bankruptcy is not an option.
The economic fallout from the automakers collapse would be deep and expansive, crippling the United States.
- Hundreds of Thousands become unemployed.
There are 4.5 million workers tied to the automotive industry and 780,000 Big Three Retires. A study released by the
Economic Policy Institute predicts the loss of up to 3.3 million jobs in the U.S. within the next year if one or more of the domestic automakers is shut down.
Although the job loss will be distributed among the 50 states, the biggest losers will be California, Ohio, Texas, Illinois, Indiana, and New York, with Michigan being clobbered the hardest as it stands to lose over 400,000 job.
- Financial institutions are left with unpaid debt, further exacerbating the nations severe economic downturn
- Failure of auto parts suppliers and service employees in wholesale and retail trade due to the interlocking automotive supply chain
- Dealerships are shuttered as sales and services drop
- Cuts are made in vital social services as revenues to the federal, state, and local governments drop
In a vital way, the U.S. automakers are the engine to the nations economy by representing almost 4 percent of U.S. gross domestic product.
But most Americans may ask, if General Motors, Ford, and Chrysler sold over 8.5 million cars in the U.S. last year outselling Toyota, Honda, and Nissan both home and abroad, how did the balance sheets get so out of balance? The answer is poor timing. The
Detroit automakers were in the midst of improving their balance sheets through ambitious restructuring, distributing huge pension and healthcare benefits, and investing in advanced technology, all while trying to build safe, fuel-efficient vehicles.
Congress initial reluctance to provide a bridge loan was based on the theory that the
UAW would attempt to use the funds to retain job banks. Job banks is a system that maintains benched workers on the payroll in lieu of laying them off as a way of maintaining contracted U.S. employment levels. Speaker Pelosi and Majority Leader Reid are placing two key conditions on any assistance from the government: strict accountability by the companies and evidence that they can be viable businesses in the long-term.
UAW supports these conditions and in particular limits on executive compensation, prohibition on dividend payments, and giving the government an equity stake in the automakers. But thats not all, workers have also made sacrifices. They will not receive any pay increases until the end of their contract in 2011.
But the measures that show the most sacrifice are those that that include delaying company payments to the Voluntary Employee Beneficiary Association (VEBA). VEBA is the independent trust that is scheduled to assume full responsibility for retiree health benefits in 2010. The other is the suspension of the controversial jobs bank program.
Following numerous discussions, Congress may provide funds that will float the automakers until spring. This breakthrough came on the heels of a sharp downturn in U.S. unemployment in November. Employers had slashed more than 533,000 jobs last month, which was the highest monthly decline in 34 years.
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