Ever wonder what would really happen if GM or Ford went out of business? All the talk recently of the government bailing out the American auto industry has just gotten me more frustrated with our government and it’s bailouts. What happened to good ol’ fashioned business? Where you had to make money to succeed, and if you didn’t you failed, and had to do something else. Lately, as the government has rescued business after business, it just makes me wonder how free is our market? I’ve thought, wow, I should work for Ford, or Fannie Mae or AIG, because apparently those jobs are government backed – pretty sweet.
So I decided to do a little research, and figure out what would really be the repercussions of a failed auto industry, to find out if it was really that bad. Let’s look at hypothetical scenario in which GM (the largest automaker at risk) declared bankruptcy and went out of business.
- Job Loss: First, GM would have to layoff almost all of their work force. In addition to those lost jobs, all the smaller companies that feed off the car manufacturer would also be in jeopardy. The Center for Automotive Research estimates that combined, this could be a loss of 2.5 million jobs.
- Unemployment Rate Rises: Last month, the unemployment rate rose to 6.5% adding 240,000 lost jobs to the U.S. Census, which was the highest it’s been since 1991. Compare that with a potential 2.5 million jobs lost if just GM where to go out of business.
- Economy Shrinks: The trickle down effect of having so many jobs lost is pretty large. Almost every facet of American economy would feel the hit. Because less people have jobs, and hence money to spend, there would be:
- Increased closings of small and mid-sized business. Pretty much all the small auto repair shops, car dealerships, and car part stores would feel a massive hit, and probably if not completely go out of business, have to cut down drastically.
- Increased Foreclosures, because more people would have lost their jobs, and their ability to pay their mortgage, there would be even more foreclosures and bank owned properties, which would drive the already dwindling real estate market down.
- Less money collected on income taxes, and property taxes. With less money going back into the economy, there would be less money going towards taxes. That means less revenue for the government, increased national and state debt, and less money for public services like police, firemen, teachers, etc.
So whether you’re for or against the auto industry bailout, one thing is for sure, the effects would be dire. What’s your opinion? Should the government step in and save the auto industry, or let the free market have it’s way? Let us know in the comments.
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