Saturday, November 15, 2008

Should GM, Ford and Chrysler and in turn America be allowed to fail?



There is a part of me that cannot believe that people would even consider the possibility of letting the “Big Three” auto makers go into bankruptcy. In the employment report of last week we saw the number of continuing claims just under 4 million people. This is a bad number and most people project that the number of people unemployed will go much higher before it begins to fall. If we allow the "Big Three" to fail then the unemployed numbers could double or even more and I do not want to even think about impact on the markets and your accounts.

If we allow the "Big Three" to fail how many people, will be added to the unemployment roles? Depending upon whom you talk to for every assembly line worker there can be as many as 10 to 20 additional people providing goods and services to the auto industry. The impact on the lost jobs could be terrifying. The most recent number of employees, retirees and family members covered by GM was about 500,000 people. Take that number and use the low end of 10 times and you are looking at over 5 million at GM alone, or more than double the current unemployed.

What would be the additional impact on the economy if labor contracts, health and welfare benefits, and pension payments could no longer be made? I am reminded a quote from Wayne Angel, the former member of the Federal Reserve who said, ‘The failure of Lehman Brother was a terrible mistake and the Treasury should own up and not make that mistake again.”

Letting the "Big Three" go into bankruptcy should not be on the table for many reason. We can discuss the failure to change the product mix, but the product mix can be part of the funding to protect our economy for total collapse. While we are on the subject of product mix, what happened to the need to develop alternative energy sources? When the price of gasoline was $4.25 per gallon, everybody was screaming about alternative energy. Now that it is $2, nobody wants to talk about alternative energy.

The president elect talked about drilling to expand our resources for energy and now he is talking about overturning all of the Executive Orders, including the lifting of the ban on off shore drilling. We have not had an energy policy and it appears that with gas at $2 or less we still will not have a policy.

We chastise the auto companies for not building more fuel-efficient cars and the energy companies for not developing alternative fuel for autos, but at the same time, we will do nothing about the fact that even at these low prices we are still sending over $300 billion overseas to some countries that do not like us very much. It is difficult for me to understand how we can consider letting the biggest employer in the United State fail while at the same time we cannot come up with an energy policy that could create hundreds of thousands of new jobs and help Detroit develop better cars.

Dan Perkins

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