Thursday, November 18, 2010

The quick bankruptcy of the automakers saved more than a million jobs

As the Federal government recovered nearly half of its emergency investment in General Motors yesterday, the Center for Automotive Research reported that the Obama administration's actions saved more than one million jobs in 2009 and just over 300,000 jobs in 2010.
Government assistance to General Motors and Chrysler enabled orderly bankruptcy proceedings and led to the saving of more than 1.14 million jobs in 2009 alone, according to a recently released Research Memorandum published by the Center for Automotive Research, (CAR), an Ann Arbor-based nonprofit research organization. The memorandum examines the magnitude of the economic impact of the U.S. policy to provide aid to the auto industry in 2008 and 2009 and weighs the public and private benefits against the public cost.
In addition, the administration's actions helped to avoid about $29 billion in other revenue losses that would have occured, lowering the net cost to the treasury.

The two unattractive choices at the time were quick government-financed and negotiated bankruptcies for GM and Chrystler or longer, drawn-out private bankruptcies. The CAR analysis compares these scenarios.

President Bush (the "great decider") punted the choice to the Obama administration. The Bush administration provided a temporary bail-out but did not make any of the wrenching choices regarding longer term support or restructuring.

Despite the assistance from the government, the restructuring was painful. Jobs and dealerships were lost. GM and Chrystler stockholders were wiped out. The analysis shows, however, that the outcome could have been more than a million jobs and nearly $100 billion dollars worse.

The Obama administration's tough decision was the right one, helping to avoid enormous additional job and income losses, while setting the stage for the automakers' eventual recovery.