Cars-Being-Built

Was the US Right to Bail Out the Auto Companies?

A think tank estimates that no bailout would have resulted in "a loss of 2.6 million jobs in 2009 and a loss of 1.5 million jobs in 2010, a total loss of $284 billion in personal income in those two years, a total loss to the federal and state budgets of $105 billion in 2010 in the form of higher transfer payments, lower Social Security receipts, lower personal income and property tax collections."

Last month, there was a fascinating discussion at the Brookings Institution on two basic questions: Did we do the right thing in bailing out the two auto companies? And, should we be optimistic or pessimistic about the future of manufacturing in the United States?

In Cliff Winston's view, the auto bailout was a very expensive Band-Aid on a gaping, long-term wound. The Brookings economist pointed out that the Big Three's market share ratcheted down from 85% in the 1970s to about 45% today. Rather than a bailout, he says, there could have been a sell-off of GM's and Chrysler's most valuable assets -- light trucks and SUVs. Ford and other carmakers would have built more vehicles and the world would have gone on.

Sean McAlinden, chief economist for the Center for Automotive Research, painted a startlingly different picture. McAlinden said there was not financing available for other manufacturers to buy the assets of GM or Chrysler, and that the production capacity lost would not have been replaced for years. Idling GM and Chrysler would have forced "hundreds, if not thousands" of auto parts suppliers into bankruptcy.

The macro impact of no bailout, McAlinden estimated, would have been "a loss of 2.6 million jobs in 2009 and a loss of 1.5 million jobs in 2010, a total loss of $284 billion in personal income in those two years, a total loss to the federal and state budgets of $105 billion in 2010 in the form of higher transfer payments, lower Social Security receipts, lower personal income and property tax collections."

More on the auto bailout on IndustryWeek.

IndustryWeek is an NED companion site within Penton’s Manufacturing & Supply Chain Group.

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