Taxpayers will share Big 3's pain whether bailout is enacted or not

12/11/2008

WASHINGTON - The U.S. auto industry's problems will cost taxpayers plenty whether or not the government helps Detroit.

Just walking away and letting the struggling Big Three automakers go under would drain government coffers by about as much as the $14 billion bridge loan that lawmakers are preparing, and perhaps much more, according to outside analysts.

The costs would come from lower tax collections by the federal, state, and local governments and the payment of extra unemployment, pension, and other benefits to unemployed or retired auto workers.

There's sharp disagreement among outside experts about exactly what an auto industry failure would look like and how much it would cost taxpayers.

But what's clear is that while no one knows how much government aid the Big Three will ultimately need, inaction would also be expensive, assuming automobile production drops and more workers lose their jobs.

The Center for Automotive Research, a nonprofit organization in Ann Arbor, estimates that if Ford Motor Co., General Motors Corp., and Chrysler LLC completely stopped making cars next year but returned to 50 percent production in 2010 and 2011, it would wipe out nearly 2.5 million jobs next year.

The center, which gets a small portion of its budget from auto companies, says lost employment would cost government at all levels $50 billion next year and $108 billion over the next three years, with Washington bearing most of that cost. Almost a quarter of the money would be for unemployment, welfare, health care, and other costs government would have to carry, while the rest would come from lost collections of taxes that support Social Security.

The conservative Heritage Foundation, however, says such projections are far too dismal.

The think tank assumed the Detroit automakers would declare bankruptcy but continue reduced operations.

Sales would increase for foreign auto companies in the United States, the foundation said, the those firms would hire additional workers, cushioning the blow to government budgets. The result: 453,000 lost jobs in the first year. That would mean a 2009 cost to federal taxpayers of just over $13 billion.