Gettelfinger on the case for auto bailout

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Buying a vehicle is the second biggest purchase that families make. Because of the overall credit crunch, most families cannot get credit on reasonable terms to finance the purchase of a vehicle. And because of the general economic uncertainty, many famil

Editor’s note: Following is an excerpt from UAW President Ron Gettelfinger’s testimony before Congress last month.

Buying a vehicle is the second biggest purchase that families make. Because of the overall credit crunch, most families cannot get credit on reasonable terms to finance the purchase of a vehicle. And because of the general economic uncertainty, many families are simply deferring any major expenditures.

The net result is that all auto companies, not just the Detroit-based automakers, have seen a sharp drop in their sales. This means that the revenues received by the companies have declined drastically. As a result, GM, Ford and Chrysler are burning through their cash reserves at an unprecedented rate. As the recent earnings reports indicate, this scenario is not sustainable. If the government does not act to provide immediate assistance, GM, Ford and Chrysler could be forced to liquidate.

The UAWwants to underscore that this would not be a painless, “prepackaged” bankruptcy reorganization as some columnists have suggested. Consumers will not purchase vehicles from a company that has filed for bankruptcy. And bankrupt auto companies would not be able to obtain “debtor-in-possession” financing to enable them to continue operations. Thus, the stark reality is that these companies would be forced into a Chapter 7 liquidation, with their operations ceasing entirely and their assets sold for pennies on dollar.

If the Detroit-based auto companies are forced into liquidation, the consequences would be truly devastating, not only for UAW members, but also for millions of other workers and retirees across this nation and for the entire economy of the United States.

In addition to the hundreds of thousands of workers who would directly lose their jobs at the Detroit-based auto companies, according to the Center for Automotive Research, a total of almost 3 million workers would see their jobs eliminated.

This includes persons who work for auto dealers, suppliers of components and materials, and thousands of other businesses that depend on the auto industry.

In addition, because the auto manufacturers depend on many of the same suppliers, a disruption in the supply chain would have serious negative consequences for the remaining auto manufacturers.

The liquidation of the Detroit-based auto companies would also have devastating consequences for millions of retirees.

The retirees from these companies and their spouses and dependents – about one million persons – could suffer sharp reductions in their pension benefits.

And they would face the loss of their health insurance coverage – an especially devastating blow to the roughly 40 percent who are younger than 65 and thus not yet eligible for Medicare. In addition, if the automakers’ pension plans are terminated, the Pension Benefit Guarantee Corporation would be saddled with unprecedented liabilities.

To prevent the collapse of the PBGC, which would jeopardize the retirement security of millions of workers and retirees, the federal government would have to provide a huge bailout for the pension guarantee program.

Furthermore, under existing law, the federal government would be liable for a 65 percent tax credit to cover the health care costs of pre-Medicare auto retirees costing about $3 billion per year. The liquidation of the Detroit-based auto companies would have serious negative repercussions for the entire U.S. economy. Almost 4 percent of our nation’s GDP is related to the auto industry and almost 10 percent of our industrial production by value.

The collapse of the auto sector would severely aggravate the current economic downturn, sending production and consumer spending into a deeper tailspin while unemployment spirals higher. Federal, state and local government revenues would shrink even further, forcing harmful cuts in a wide range of social services at precisely the time they are most urgently needed. The UAW submits that it would be far better for the auto industry and its workers and retirees, and for the nation as a whole, for the federal government to take prompt action now to prevent the imminent collapse of the Detroit-based auto companies. The human toll will be far less, especially a devastating blow to the roughly 40 percent who are younger than 65 and thus not yet eligible for Medicare. In addition, if the automakers’ pension plans are terminated, the Pension Benefit Guarantee Corporation (PBGC) would be saddled with unprecedented liabilities. To prevent the collapse of the PBGC, which would jeopardize the retirement security of millions of workers and retirees, the federal government would have to provide a huge bailout for the pension guarantee program.

Furthermore, under existing law, the federal government would be liable for a 65 percent tax credit to cover the health care costs of pre-Medicare auto retirees costing about $3 billion per year. The liquidation of the Detroit-based auto companies would have serious negative repercussions for the entire U.S. economy. Almost 4 percent of our nation’s GDP is related to the auto industry and almost 10 percent of our industrial production by value.

The collapse of the auto sector would severely aggravate the current economic downturn, sending production and consumer spending into a deeper tailspin while unemployment spirals higher. Federal, state and local government revenues would shrink even further, forcing harmful cuts in a wide range of social services at precisely the time they are most urgently needed. The UAW submits that it would be far better for the auto industry and its workers and retirees, and for the nation as a whole, for the federal government to take prompt action now to prevent the imminent collapse of the Detroit-based auto companies.

The human toll will be far less.

Copyright 2008 Chicago Defender. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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