Who would be affected by the closing of the American automakers? Surely, not us? Let's take a look...
A large number of industries would be hard hit by the ripple. Parts suppliers, dealerships, after-market producers, steel companies, shipping & freight - trains, ships and trucking - advertising agencies, accounting firms, legal services, vending machines and food service, paper goods, paint manufacturers, and glass producing companies would lose the largest source of their business and many would close and/or lay off employees.
Unemployed people do not travel, shop or go out to eat, so tourism, retail establishments and restaurants will close, causing more unemployment. The closing of these businesses will affect their suppliers as well, including, but not limited to suppliers of glassware, food, linens, luggage, souvenirs, gifts, groceries, cameras, camping supplies, sporting goods and guide services. Museums and other attractions will close.
How much energy will the closed plants utilize? Electricity, gas, phone and water = $0. The projected income for utility companies will be drastically reduced and they, too, will lay off employees. Costs for consumers may be raised to make up the loss. Winter is nearly upon us. The timing could not be worse.
Unemployed workers can take advantage of the proposed national health care. No, wait. If so few workers are paying income tax, national health care cannot be funded. Affordable housing will swamp the market as the unemployed lose their homes to foreclosure. What a great time to buy a home, if only one had a job and an income. The children of the unemployed will qualify for tuition assistance, but again, the lack of funding through taxes will dry up education funds overnight.
Can the unemployed afford cable TV, internet access, cell phones, movie tickets, newspapers, books, games, toys, sports equipment, tools, remodeling supplies or services?
The ripple will go from national to global when the US stops importing goods. Whether or not the industry caused some of its problems, it's hard to make a case for punishing the automakers when the ripples of that penalty will have worldwide implications to millions of innocent people.
President-elect Obama is working with other legislators, to approve loans to the automakers. Let us hope he succeeds, or the ripples won't be stopped.
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Comments: 40
But then I cant see letting so many people suffer because of the same CEO's.
The point of that story being that we are about to see the opposite happen in America. The factories will close, then the grocery stores, the we will be in the same shape as the Ethiopians.
We are caught in a lose/lose situation. If we don't do anything about the auto industry, it will wreak havoc on our economy. If we help the auto industry, we will be rewarding the people who screwed things up. In my post, Article on the Auto Company Bailout, I left a comment to someone about how maybe the best thing to do is break up the major auto companies into their divisions. Instead of having the GM+Ford monopoly we have been under for many years, we might have some real competition.
Tax dollars will pay, one way or another. If the companies are not bailed out, the federal government will pay millions of pensions and health insurance for retirees. That would be money spent without stopping the ripple. Where do you fit into the ripple?
Colin, where do you work? Think about where the ripple will find you and your family and friends and how it will change your lives.
To the contrary the Green industry will start hiring maybe next year. Any solution to have these 3 million people stay alive in the meantime?
This article is misguided and unrealistic. A managed bankrupcy or failure of the American auto companies will not end most of the jobs listed. People are still going to be driving these cars for years to come so the after market products will still be heavily in demand. The markets will just open up to successful non-union auto makers and jobs and services will flow in that direction. Either way, the big three will just be eaten up my successful auto companies or investors who will try to save the name and brand by reinventing the companies from the bottom up. Regardless, the unions will have to go for any of them to be successful. To the unions I say good riddance.
A ten I leave you~ To help you reach your Gather goal..
Unions are not the culprits in this industry failure, however. It's a very long history of very poor, wasteful management.
How would you save the economy from this ripple effect? Where will it find you? No industry is exempt. I wish I was wrong about this. I'm afraid I'm not.
OK, so you're FORD. I can't afford to buy a car from you. The government gives you $25B; I still can't afford to buy a car from you. So basically; you want to get paid without selling your product.
Free enterprise is what it is. The owner or shreholders take a risk when they start a company. When times are good I didn't see any of these folks saying, "Uncle Sam, we're doing good, here's $25B to share among your citizens". So don't let me hear "Uncle Sam, we messed up and not doing so good, please have your citizens give us $25B - heck if you do, we might even knock $100 off the sticker price...."
Phooey.
And Jan, I know you have a very personal stake in this so I respect your view.
AND THE EXITING CEOs & EXECs WILL ALL WALK AWAY WITH MULTI-MILLION $ SEVERANCES - WATCH.
I am truly fed up with all the doom's day predictions and the scare tactics by the government.
That's the same reasoning they used with the 7 hundred billion dollar bailout..
And, guess what?
Nothing has changed. Things have gotten progressively worse.
And, this time won't be any different.
Pay the American public first, and then, everything will trickle over to the companies.
That's my opinion.
No one is going to buy a car from a bankrupt car company. One in ten jobs are associated with the auto industry. Think they should use some of the already invented 700 billion if they have not lost it already. What did they do with it? Anyone know. I heard some banks used it to buy other banks. I still don't get that event.
Today's Detroit Free Press has stories about a photographer, a restaurant owner, a caterer and a hair salon owner who are already feeling the pinch. If the Big 3 close down, so will their businesses and many others.
Last night, President Bush spoke, saying that the bail out would cost much less than paying pensions and health insurance for millions of retirees. He's right about that, and Obama agrees, but congress is balking.
"The Big Three U.S. automakers need more than an injection of $25 billion from the federal government. Because of their ongoing losses, they would burn through that money in less than a year and would soon be back for more.
General Motors, Ford and Chrysler can make excellent cars, but they cannot sell them at prices that are competitive with the prices of cars produced in the U.S. by Toyota and others or with the prices of cars imported from Europe and Asia. The basic reason is labor costs imposed by union contracts.
The Big Three pay much higher wages than production workers are paid in the nonunion auto firms and in the general economy. And the health care costs of current workers and retired union members are an enormous additional burden.
The bankruptcy court could require the unions to rewrite contracts, bringing wages down to levels that would allow the firms to compete and therefore to maintain employment. Scaling back employee and retiree health benefits would further improve price competitiveness and allow better cash wages. The firms' bondholders and other creditors would have to take losses. Shareholders' fate would depend on how firms responded to this restructuring.
The claim that bankruptcy would mean the loss of millions of jobs is nonsense intended to scare the public and force legislators and the Bush administration to throw money at the auto industry's problems.
If politicians in Washington cannot live with the thought of the auto industry in bankruptcy and decide that some cash must be delivered, this should be done as part of a fundamental restructuring plan imposed by the government in exchange for those funds.
The goal of that restructuring should not just be to require the companies to make cars that are fuel-efficient and more environmentally sound, as President-elect Obama has said, although that can be included in the government's list of requirements. The goal should be to put the companies on a course that will allow them to survive for the long term, producing cars and creating jobs.
To do that, the government should insist that the unions accept reductions in wages and benefits to levels that allow the firms to compete with imports and with nonunion U.S. auto firms. The trustees of retiree benefits should be required to accept reductions in benefits.
The government has substantial leverage to ensure these changes occur. The auto companies' management, unions, trustees of retiree benefits and creditors would recognize that without government assistance, the firms would be forced into bankruptcy and that the bankruptcy court could require even more severe cuts in incomes, benefits and payments to shareholders and creditors.
Administering bitter medicine is difficult for politicians. President Bush would do his successor a favor by forcing such a restructuring. It would relieve Obama of his promise to help the auto companies and in a way that improves prospects for the American automobile industry. "
The writer is an economics professor at Harvard
1) There are too many cars being made to be consumed and, no matter what the government does, eventually all of these people will lose their jobs anyway.
2) Out of the ashes will rise the phoenix. In other words, the jobs lost due to closure of one or more of these companies will be re-created by the surviving or newer companies -- hopefully these companies will have a better business model and better product than we've seen over the past 35 years.
I agree with what you wrote. The consequences of failure of any of the Big 3 is not a risk we need, especially now. I do hope the bailout will someway, somehow get real car people running these companies again.
I fully understand your point on the ripple effect, and I agree with you. I believe that we could actually give them a bailout that would be appropriate for saving the industry, but NOT as free for all spending funds.
In order for them to receive the money, it should be in structured low interest loans. They should be required to present business proposals detailing exactly how those funds will be put to use to provide the most benefit for the dollar. In additon there should be a total overhaul of the executive work forces in EVERY company that receives the funding. Not one dime should be allowed to be spent on exhorbitant executive pay or benefits. Each year that the loans are carried, the automakers should be providing a detailed accounting of how that money has been used to RECOVER and if possible expand. And lastly, the money should not be allowed to be spent on setting up factories in Mexico or ANY other country! The money MUST be used HERE, to benefit the AMERICAN people, by way of jobs, and benefits paid to those who have already retired from these companies, NOT including the executives who have already taken more than they deserve.
I still see people who don't realize how the ripple would impact their jobs and lives. As more service companies, restaurants and retail shops close, more people will be unemployed. Without the aid package, our tax dollars will pay millions of pensions and unemployment benefits, but no cars will be produced. Not a winning investment for anyone.
I'm glad they voted it down. I wish they'd voted down the $700 Wall St bailout, and I'm a financial advisor. Where do you think this money comes from? The government is in the whole already...all this is doing is creating new money. In other words, inflation. And we have to pay it all back with interest.
Let these companies fail. That's how capitalism works. If you're willing to enjoy the benefits of capitalism when times are good, then you have to be willing to endure the hardships when they aren't. It's a natural part of the business cycle, it's been going on forever and it's going to KEEP going on forever. All you can do is position yourself to ride it out as well as possible.