Wednesday, July 27, 2011

The Price of Saving Two of America’s Big Three? $14 Billion, but it Could have Been Worse

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Here’s a fun little activity for our readership: check out the U.S. National Debt Clock website and take a gander at the figure under, “U.S. National Debt”.

Chrysler Seen On www.coolpicturegallery.usThat number is a little over US$14 trillion (€9.67 trillion), and is probably one of the reasons President Obama is having trouble sleeping at night. Around 0.1% of that is the loss the U.S. Treasury suffered by bailing out two of America’s big three automakers: General Motors and Chrysler.

At the height of the Global Financial Crisis in 2008, the U.S. government spent $80 billion (€55.2 billion) to save the auto-industry. Of that amount, US$14.6 billion (€10.08 billion) has been lost, never to be reclaimed. It comes as sobering news given the current state of the U.S.’s ever-growing national debt.

On the plus side, the Center for Automotive Research (CAR) estimates that, if nothing was done, the failure of GM and Chrysler would have cost America $28.6 billion (€19.73 billion) in lost taxes and unemployment benefits over the first two years alone. And that doesn’t include business tax and tax revenue from state and federal governments.

More alarmingly, in just the first year some 1 million jobs – atop the 400,000 already lost in the twelve months leading up to the bailout – would have been lost had GM and Chrysler gone under.

In the post-bailout aftermath, some 113,000 of those jobs have been reclaimed. Furthermore, 15,720 new positions have been created at GM and 6,000 at Chrysler. GM also invested US$5.4 billion (€3.73 billion) back into the U.S. economy while Chrysler invested US$3.2 billion (€2.21 billion).

Not that GM and Chrysler are completely blameless, mind you. For years they poured millions into companies like GMAC and Cerberus Capital Management while producing substandard, badge-engineered automobiles nobody wanted to buy.

They let their bread and butter models suffer while sinking millions into halo cars and hastily dismissed quality concerns. At the same time, their Japanese and South Korean competitors claimed more and more of the U.S. auto market.

No, GM and Chrysler are not completely blameless in the fiasco that was the Global Financial Crisis. Like the banks, the politicians and the public both in the U.S. and abroad, they are left with the knowledge that they were partly responsible for what happened back in 2008 – and what could so easily happen again.

For now, at least, it appears GM and Chrysler are starting to atone for their sins.

By Tristan Hankins

Story Source: CNN Money


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