Will Fiscal Crisis Crush Ailing U.S. Auto Biz?

 

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A "massive number" of American jobs are dependent on the country's auto industry, he said.

To let the companies go under, Bragman said, "would be far more expensive than to try to help" with a bailout.

There is a precedent for a government auto bailout. In 1980, the federal government backed $1.5 billion in loans for Chrysler, helping the company, which was the world's No. 9 auto seller last year, avoid bankruptcy.

But repeating the Chrysler bailout would be a bad idea, said Barry L. Ritholtz, CEO of Fusion IQ, an institutional research firm, and the author of "Bailout Nation: How Easy Money Corrupted Wall Street and Shook the World Economy."

It was the Chrysler bailout, he said, that cemented the expensive union contracts that would cripple American automakers later on.

"What normally happens when an industry has a horrific contract … eventually they collapse. And that collapse forces the whole industry to realign," Ritholz said.

The Chrysler collapse, he said, never happened, "so instead, here it is, 30 years later and GM is carrying a $3,000, $4,000 cost on every car that Toyota and Honda doesn't have."

With reports from ABC News' Scott Mayerowitz and Rana Senol.