Epiphanyblog

All about ideas…

The United States is Not an Island

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Even as the Big 3 await the much hoped for bridge loan from President Bush to save their companies, governments around the world are putting up funds to save their auto manufacturers.

Today, December 12, 2008, NY Times Reporter David Jolly writes:

Even as the bailout package for Detroit’s automakers remains a question, automakers in Europe and Asia are lining up for handouts.

“It’s a foregone conclusion that governments around the world are going to aid these companies,” Dennis DesRosiers, an independent auto analyst in Toronto, said. “It’s just a matter of working through the politics.”

In the European Union, carmakers have sought 40 billion euros, or $52.5 billion, in support. While they may not get that much, governments are planning several initiatives. Much of that support, as elsewhere, is meant to accelerate the development of fuel-efficient vehicles.

The European Investment Bank will provide the industry with 4 billion euros in low-interest loans in 2009 and 2010 as part of an initiative to develop cleaner cars. Along those same lines, the European Commission, the union’s executive arm, will spend 5 billion euros over two years.

Meanwhile, General Motors announced today that it was “temporarily” closing 20 factories in North America.

Katie Merx of the Detroit Free Press Business reported today:

General Motors Corp., which is involved in a last-ditch effort to garner federal funds to help it survive through January, confirmed this morning that it is slashing approximately 250,000 units of production in the first quarter by shutting down most North American assembly plants for about 30% of the first quarter.

In CAR Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers, the authors write:

In economic terms, the rapid termination of Detroit Three U.S. operations in 2009 would reduce U.S. personal income by over $150.7 billion in the first year, and generate a total loss of $398.2 billion over the course of three years. The impact of this personal income loss on fiscal government operations at the local, state and federal levels include an increase in transfer payments, a reduction in social security receipts and personal income taxes paid. The net impact of all three of these categories is negative on the
government balance sheet, resulting in a loss to the government of $60.1 billion in 2009, $54.3 billion in 2010, and $42.0 billion in 2011–a total government tax loss of over $156.4 billion over three years.

If anyone is left with doubts as to the enormous fiscal impact to families, states and communities at a time when the unemployment rate is rapidly climbing and state and local governments are having to slash needed services, these figures and facts should make them stop and think.

Ideology is one thing. Reality is often another. If the Big 3 were allowed to fail at this time, the economic impact would be devastating to the U.S. It’s been reported that at least one in every ten jobs is related to or will be affected by the shut down of the Big 3. Moreover, it could very well push the global economy into a depression as all the other auto manufacturers would be severely affected not only by the loss of supplier who would be forced to close their doors, but also by huge unemployment in this country.

Perhaps if you’re independently wealthy with lots of cash reserves – or you’re a member of Congress – you don’t have to be worried about the loss of your job or your economic future. Most of us, though, are concerned about our economic futures.

What the Senate Republicans did last night was nothing more than play politics with peoples’ lives and fortunes. They were flexing their political muscle in order to serve up a defeat to the Democrats while hoping that the foreign company auto plants in their own states were safe, secure and protected by foreign government assistance.

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Written by Valerie Curl

December 13, 2008 at 2:26 AM

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