Bankruptcies, What If They Don't Work?

May 26, 2009

The professionals on staff at the Center for Automotive Research are not a bunch of politically-minded, industry-tainted hacks. These people know what they're talking about, and when they offer an opinion on something, it's worth taking note.

In a release (shown below), they begin to tally the cost of what might happen if Chrysler LLC and General Motors do not emerge from their current and potential bankruptcies quickly. Image Chrysler and GM after a 90-percent reduction in operations at both companies. Imagine an increase in unemployment of 1.3 million people that is directly related to the drawn out proceedings.

Not only that, but surviving manufacturers like Ford Motor Company and the imports would lose 50-percent of their production in the first year due to parts shortages and fire-sale clearances of Chrysler and GM inventories.

Not good, eh?

Let's hope the Treasury Department (led by a man who couldn't properly figure out his own taxes) can orchestrate a tenable end to this predicament.

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Impact of unsuccessful Automaker Bankruptcies on U.S. Economy is major, according to Center for Automotive Research new estimate

ANN ARBOR, Mich., May 26, 2009 – Unsuccessful bankruptcies would reduce employment in the United States by more than 1.3 million jobs by December 2009 according to a new analysis, released by the Center for Automotive Research (CAR) in Ann Arbor, Michigan.  CAR researchers  estimate the impact on the U.S. economy of the bankruptcy of Chrysler and the potential bankruptcy of General Motors considering the short-term, economic cost of unsuccessful bankruptcies of the two firms compared to the public cost of initiating successful bankruptcies.  Over 1.3 million jobs would be lost in the first year if the bankruptcies prove to be lengthy and disorderly given this will disrupt the supply chain and lead to a potential loss of market share.  A 90 percent reduction in the operations of the two Detroit companies could result.

“Our model estimates that a successful bankruptcy process for both GM and Chrysler would have a major impact on the U.S. economy in terms of the maintenance of wages, social security receipts, personal income taxes paid, and a reduction in the need for transfer payments,” said Sean McAlinden, CAR chief economist and the study’s leader.  “This estimation should be a valuable input into the decision by government authorities to ensure the successful restructuring of GM and Chrysler into viable stand-alone motor vehicle firms.  In the case of unsuccessful bankruptcies where the companies do not re-emerge, the government stands to lose revenue on the level of $37 billion in the first two years alone.”

The research analysis, available at CAR’s website (, is the result of an economic modeling effort to demonstrate what could potentially happen if GM and Chrysler gradually fail in the U.S. automotive market. CAR has conducted the majority of national level automotive economic contribution studies completed in the United States since 1992.

The CAR modeling effort assumes Ford Motor Company and the international automakers located in the U.S. would lose 50% of their production in the first year due to parts shortages or fire-sales of GM and Chrysler inventories.  In the second year, however, these automakers resume full production and replace 30% of GM and Chrysler output (with the balance going to imports) and U.S. job loss falls to about 440,000.

To obtain a copy of the research memorandum, or for more information on CAR, please

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