Reply #63: Study: Automakers' failure would cost U.S. more than aid

[tammywammy]

Study: Automakers' failure would cost U.S. more than aid

DETROIT -- The collapse of two Detroit automakers would cost the United States government at least four times as much as loans to keep them alive, a new study says.

Taxpayers will wind up paying $66 billion if two of the Detroit 3 sink into bankruptcy and then go out of business, according to the report released today by the Anderson Economic Group, a consulting firm, and BBK, a business advisory company.

The firms compared the costs of bankruptcy with federal bridge loans aimed at keeping General Motors, Ford Motor Co. and Chrysler LLC running until they can retool and lower costs.

"The reality is that if the government doesn't provide support now, it will eventually provide it later,'' said Kriss Andrews, managing director of BBK's automotive practice. "It would be far better for the government to come in now under controlled circumstances to resolve the problem than in an uncontrolled circumstance."

The report was released as White House and Congressional negotiators iron out their differences on a $17 billion short-term loan package. White House Press Secretary Dana Perino told reporters that a deal will "very likely" take shape today.

GM and Chrysler say they need a combined $11 billion to avoid running out of cash by Jan. 1. Ford believes it has enough cash on hand to ride out the recession but wants a government-backed $9 billion line of credit in case the market worsens. The figures are part of a combined $34 billion request made by the three companies in survival plans submitted to Congress last week.

BBK, of suburban Detroit, and Anderson projected $16.4 billion in taxpayer costs stemming from a $30 billion government bridge loan.

A bankruptcy by two of the Detroit 3 would result in a near immediate halt of all automotive and components manufacturing in the United States and would cost taxpayers $66 billion in two years.

Andrews said federal and state governments would pay for a Detroit automaker bankruptcy through lost tax revenues, lower property values in cities with auto plants, dealerships that are forced to close and increased unemployment payments. Also, the federal government would be forced to honor retirees' pensions.

Patrick Anderson, CEO of the Anderson Economic Group in Lansing, Mich., estimates the failure of two of the Detroit 3 would put 1.8 million people out of work.

Bankruptcy would cost automakers at least $5 billion in fees, plus another $1 billion for lawyers, Anderson said. In addition, consumers would steer clear of automakers in bankruptcy, making liquidation more likely.

"Bankruptcy judges have a lot of power," Anderson said. "But they don't have the power to tell people who to buy a car from."

http://www.autonews.com/article/20081208/ANA02/812080288/1128