Why the Auto Industry Must be Bailed Out

Congress is preparing to begin a lame-duck session to debate one of the most pressing issues facing the current Congress and the Bush administration: Whether or not to aid the U.S. auto industry and prevent the Big Three from filing for bankruptcy protection.

The auto industry has been one of the hardest hit industries by the global economic crisis as consumers scale back spending, credit gets harder to come by and fewer buyers are interested in gas-guzzling SUV’s, Detroit’s former cash cow. Sales at all three companies are at their lowest levels in 25 years, not to mention all three are bleeding cash to the tune of roughly $1 billion per month. GM has said that it may not have enough capital to survive through the end of the year.

The growing concern of the prospects is well justified. Allowing the industry to collapse would be a catastrophic blow to U.S. economy, national security, the labor movement and the financial and social health of hundreds of Midwestern communities.

If the auto industry is allowed to fail it will result in the loss of three million jobs in the first year alone. Entire industries that supply automakers could be put out of business in a domino effect. The loss of three million jobs would also cost federal, state and local coffers an estimated $175 billion in tax revenues and incomes in the first year alone.

One example of this is the small community of Lordstown, Ohio, a town of just over 3,000 with a GM factory that employs over 6,000. Without those tax revenues the small community would lose 70 percent of its budget, forcing the town to cut back on social services and scale back the size of its police and fire departments.

"The collapse of the domestic auto industry is not a viable option for our nation's economic security," Sen. Sherrod Brown said.

The auto industry has also been a major asset in times of war, voluntarily switching production from commercial products to military products during both world wars. Without the factories to churn out needed war materials the U.S. would have had to rely on other nations to equip our soldiers.

"If we ever need that national security production for serious defense, for any kind of significant war, it's gone," Brown said.

While some free-market advocates say that the companies should be allowed to fail and then retool, much like many airlines, any bankruptcy could seriously undermine confidence in the companies. Consumers would be wary of making long-term purchases from companies that may not be around as long as the vehicle, leaving question about warranties and services unanswered.

In addition, a bankruptcy filing could allow the Big Three to terminate labor contract with the United Auto workers Union, sparking what could be a nasty labor dispute and undermining one of the strongest unions in America.

The federal government has already bailed out countless Wall Street firms that are not nearly as vital to the nation’s economic health. To let America’s auto industry collapse would be a travesty.

The debate may be the final showdown between the Bush administration and Congressional Democrats. The Bush administration is seeking concession in the form of passage of the Columbian Free Trade Agreement but Congressional Democrats and President-elect Barack Obama do not appear willing to do so.

If the auto industry would collapse before year’s end it would be another tarnished mark on Bush’s legacy that already includes the bungled response to Hurricane Katrina, two mishandled wars and a global recession on his watch.

“People can blame the president of the U.S. for a lot of things and a lot of things land on his desk, but the state of the auto makers right now is not the president of the U.S.’s fault,” White House press secretary Dana Perino said.

The fate of the auto industry is on his desk now, and if he refuses to act and one or more of the Big Three fail there will be plenty of fingers pointing in George W. Bush’s direction.

Front Page Photo themotorreport- Flickr © Some rights reserved

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