Southfield, Michigan – The effects of an automaker bankruptcy could cost U.S. taxpayers up to four times the amount of the proposed federal bridge loans if at least two companies failed, according to a joint analysis released by Anderson Economic Group (AEG) and international business advisory firm BBK. The firms said that the nation’s economy would be far better served by providing bridge loans to the domestic automakers.
“We hope this research report provides policymakers and taxpayers with an objective, independent assessment of what an automaker bankruptcy would look like,” said Patrick Anderson, CEO of AEG. “The findings indicate a bridge loan scenario would be the more financially sound choice of the scenarios currently under debate in Washington, with lower relative economic costs than not providing any type of financial support.”
The study estimated direct taxpayer costs of multiple scenarios for a bridge loan or bankruptcy over a two-year period and revealed that losses of employment, income and tax revenue in a bankruptcy are unequivocally much higher than those from company restructuring with the help of federal bridge loans. The study said that if two of the three Detroit-based automakers fail, there would be more than 1.8 million one-year jobs lost, and nearly US$70 billion less in federal and state revenue over the two-year period.
“The report shows the immediate impact of the collapse of even two automotive manufacturers that would only further exacerbate our current economic crisis and likely would precipitate a complete shutdown of nearly all auto production in the U.S. for some time,” said Kriss Andrews, Managing Director of BBK. “The other direct economic costs of a bankruptcy would be similarly distressing, from additional debtor-in-possession financing of an already bankrupt automaker by the federal government, to the disruption of the credit and related markets.”
The report also concluded that a bankruptcy scenario would result in further degradation of housing, and the value of securities such as outstanding bonds of the automakers and suppliers, and commercial and automotive assets; the permanent shifting of some share of manufacturing employment and technology expertise to foreign countries; and professional fees for bankruptcy paid out of a shrinking monetary pool that would otherwise fund retirement benefits and warranty work. As well, automakers assembling in Europe, Japan, China and Korea would likely benefit from consumer buying pattern shifts that could persist for several years.