Canadian Manufacturing

Study claims auto bailouts saved millions of jobs, billions of dollars

by Dan Ilika   

Canadian Manufacturing
Operations Automotive bailout Economy Manufacturing

Government bailouts of Chrysler, GM saved estimated 4.1 million between them, according to study

ANN ARBOR, Mich.—A new study suggests that government bailouts dished out to General Motors and Chrysler during the recent recession saved millions of jobs from the chopping block in the United States.

Released as the U.S. government prepares to sell off the remaining stock it purchased in GM at the height of the the Great Recession, the study out of the Michigan-based not-for-profit Center for Automotive Research (CAR) claims the billions in bailout money handed to GM and Chrysler five years ago has staved off the collapse of an entire industry.

According to study authors Sean McAlinden and Debra Maranger Menk, any perceived shortfall in return on the U.S. Treasury Department’s US$49.5-billion bailout package doled out to GM is short-sighted, as the taxpayer funding actually preserved 1.8 million jobs through GM alone—an estimated 4.1 million between the two automakers—and US$284.4-billion in personal income over 2009-10.

A further US$105.3-billion in lost transfer payments and personal and social insurance tax collections were dodged over the same two years, according to the authors.


“If the final net cost of this investment is US$11.8-billion in unrecovered funds in GM and the reported loss of US$1.9-billion in Chrysler, this net investment would total US$13.7-billion in Treasury funds,” the authors wrote.

The study also claims that, had both automakers ceased operations in 2009, almost 600,000 existing retirees from GM and Chrysler would have seen their pensions delayed or reduced, and their health benefits cancelled.

The situation in Detroit in 2008-09 was so dire that the automakers “were on the brink of collapse,” and loans provided by federal, state and provincial governments in the U.S. and Canada “averted certain economic catastrophe,” backed up by statements made by Ford Motor Co. CEO Alan Mulally.

“If GM and Chrysler would’ve gone into free-fall, that could’ve taken the entire supply base into free-fall also, and taken the U.S. from a recession into a depression,” Mulally said last year. “That is why we testified on the behalf of our competitors.”

Ford was the only one of the Detroit Big Three that did not to take taxpayer money, opting instead to use its logo as collateral in order to secure a US$23.5-billion loan.

The automaker has since repayed the financing and regained control over its Blue Oval trademark.

With Mulally’s assertion that the industry was on the brink of disaster, the authors note the residual effect GM and Chrysler collapses would  surely have had would have been astounding due to the deep supply chain interdependence in the industry.

Researchers at CAR do project that much of the U.S. auto manufacturing employment would have returned by 2011 without government bailouts, but said “there would have been a decided shift in the location of this employment” to the southern U.S., largely due to automakers like Volkswagen opting to open plants there.

Perhaps more importantly, though, is the possible psychological effect of the potential collapse of GM and Chrysler on the rest of the U.S. industrial base, which the authors said is the most difficult to estimate.

“Given the tenor of the times in early 2009, it is not difficult to imagine an ‘Industrial Lehman Brothers Effect’ for the U.S. main street economy,” the authors wrote.

“If the U.S. government had refused to assist such large, integrated and strategic industrial firms as these two Detroit automakers in a financial crisis of unprecedented proportions, then the whole U.S. economy was operating without a safety net, with the exception of course, of the banking system.”


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