LANSING – As congressional negotiators drew closer to reaching an agreement on financial assistance for the ailing domestic auto manufacturers, a report was issued that argued the cost of a bailout for General Motors, Ford and Chrysler will be less than the cost of enduring bankruptcy by any or all of the manufacturers – one-fourth the cost of bankruptcy, the report said.
The three companies request that the federal government provide them $34 billion in assistance to meet cash flow needs as they reorganize (they will likely receive less than that in federal loans), but the report issued jointly by East Lansing-based Anderson Economic Group and BBK, an international firm that works with troubled companies (and in Michigan is located in Southfield), said the effects of bankruptcy on the U.S. economy would be four-times that cost.
“The immediate impact of the collapse of even two automotive manufacturers … would only exacerbate our current economic crisis and likely would precipitate a complete shutdown of nearly all auto production in the U.S. for some time,” Kriss Andrews of BBK’s automotive practice said.
Increases in unemployment due to an automotive bankruptcy, as well as losses in tax revenues, would “unequivocally” cost the country more than would the bailout loans.
The report estimated that if two companies, most likely GM and Chrysler, were forced to file for bankruptcy it would lead to at least the loss of 1.8 million jobs. That alone would lead to lost federal and state income tax revenue of at least $70 billion, more than twice the amount the companies are requesting in assistance.
Bankruptcy would almost certainly see a shift in manufacturing from the United States to Asia, particularly China, and Europe.
And just meeting the costs of bankruptcy could further threaten cash flow and cut funds going to retirement programs and to programs to guarantee vehicle warranties.
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