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Auto industry collapse would crush U.S. economy: study


Wednesday, November 05, 2008

A leading think-tank has drawn a doomsday picture for the North American auto industry that shows that if Detroit's automakers shrink further - even fail - the U.S. economy would suffer a crushing blow, losing at least 2.46 million jobs in the first year alone.

In a report released Wednesday, the Center for Automotive Research in Ann Arbor, Mich., outlined what would happen in two separate scenarios if General Motors Corp., Ford Motor Co. and Chrysler LLC were forced to scale back or shut entirely.

If all three Detroit manufacturers were to cease operations, the U.S. economy would lose 2.95 million direct and indirect jobs in the first year. Governments would lose at least US$156.4-billion in taxes over the first three years.

If Detroit cut output and employment by 50% to meet ever-shrinking market share, which would mean contraction by two of the automakers, 2.46 million jobs would be lost initially. Governments would lose US$108-billion in revenue over three years, according to the analysis.

"The circumstances are such that either of these scenarios is possible, and indeed one or the other is probable, within the next 12 months," the non-profit think-tank said.

The report bolsters the case that the government of president-elect Barack Obama needs to act decisively to speed up financial aid to the domestic industry.

Its authors argue the newly-elected government of Prime Minister Stephen Harper will also have to get involved if it wants to preserve Canada's auto sector.

"The cost of a failure on a cash basis is a lot greater than the cost of keeping these guys in the game," CAR chairman David Cole said in an interview. "There is a real high sense of urgency in the middle of this. We think that [lawmakers] will recognize that a failure here is something that is just not good in any way shape or form for the economy."


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