When the heads of General Motors gm, Chrysler and Ford Motor f and their major union go to Capitol Hill on Tuesday, they will try to convince lawmakers that if the Big Three automakers go under, the fragile U.S. economy will be dealt a blow far costlier than the $25 billion in aid the companies want.
There's no question the automakers are in dire straits. Without federal aid, or a sales rebound that no one is forecasting soon, at least one of them could have to file for bankruptcy protection. GM has said it's just a quarter or two away from running out of cash. It told dealers it will delay their reimbursement for rebates and incentives due next week, a sign cash flow problems are deepening.
Congress is considering aid for automakers during a special, lame-duck session. Senate Majority Leader Harry Reid, D-Nev., on Monday introduced a bill to amend the $700 billion financial rescue package to mark $25 billion for loans for automakers and their suppliers.
CEOs Rick Wagoner of GM, Alan Mulally of Ford and Robert Nardelli of Chrysler — as well as United Auto Workers union President Ron Gettelfinger — will make their case Tuesday before the Senate Banking Committee, with a similar session set for Wednesday in the House.
The question legislators, pundits, lobbyists and taxpayers are asking is: If we let these guys fail, how bad will it really be for the economy?
Critics say Detroit created its own problems by relying too much on trucks and SUVs and cite a healthier foreign auto industry operating mostly in Southern states that isn't seeking a taxpayer bailout. But even Toyota said this weekend that it fears the impact on the parts suppliers it uses if the USA's domestic auto industry collapses.
Moody's Economy.com chief economist Mark Zandi estimates that 2.6 million jobs — about 1.9% of the U.S. workforce — would be lost if GM, Chrysler and Ford were to go under.
That includes more than 255,000 people directly tied to the three companies and an additional 2.3 million whose jobs are indirectly dependent — everything from people who work in the steel, glass, fabric, tire and electronic industries to the barista who makes $4 cappuccinos for the ad executive who'll be out of work when his auto industry business ceases to exist.
Zandi argues the economy is too weak to absorb the fallout from an auto industry crisis.
"We are in a very fragile state. This could be the thing to push us over," he says. "The ripple effect is like throwing a big boulder into the economic pond."
The auto industry is woven into the roots of the U.S. economy, through its dealer networks, the advertising it buys in newspapers and local TV and radio stations, the health care it buys for its workers and their families and the retirees it supports who are scattered across states well beyond the Midwest, where the domestic auto industry is based.
Advocates of a bailout argue that if one of the Big Three fails, it could take down an entire supply chain that cuts a wide swath from Wisconsin to Ontario, Canada, and south from Florida to Texas. As Toyota officials pointed out, that would affect all companies making vehicles in the USA.
The impact of the industry woes already is being felt beyond Detroit. Saturday, a Chrysler-Dodge dealership in Brattleboro, Vt., closed after 20 years, citing slumping sales. It became one of the projected 700 dealers nationwide expected to have closed by the end of this year.