UPDATE 04/24/10: For perspective, Fortune magazine (April 12, 2010) reports that 870,000 people will be hired this year for the census which could reduce the unemployment rate by 0.5%. GM & Chrysler only employ 170,000 people. So if all of the employees of GM and Chrysler had been laid off, that would have only been 20% of what was hired to do the census. That is how small the impact would have been, economically. But tiny economic pains don’t make for really great political press coverage and some votes, oh…and to save every last union job there is, no matter what it costs you and me to do it.

Original Post Starts Here…

“Hundreds of thousands of Americans would have been hurt, not just at those companies themselves, but at other auto companies and at their suppliers and dealers, here in Ohio, up in Michigan, and all across this country.”

That is what Obama told a crowd in the suburbs of Cleveland last week.

Why did we spend $64.2 billion dollars to save 0.1% of American workers?  That’s right…these American workers make up less than one-fourth of one percent.  A fraction of a fraction.  The way the news goes on and on about it, it sounds like half of America would get laid off if we let GM and Chrysler go under.

Let’s review…

Chrysler, GM and Ford all went to Congress for a bailout. Ford got nothing.

Out of 130,000,000 (130 million) people now working in the United States, only 170,000 of them are GM and Chrysler employees in the United States.  That represents .13%, or less than one-fourth of 1% of working Americans.

Even if you consider their suppliers and dealers, and quadruple that number to 680,000 as potentially unemployed,  that is still only one-half of 1% of working Americans.

So to save less than 0.5% of jobs, the government put us, the American taxpayer on the hook for $64.2 billion.

Worst Case #1: They didn’t get our money

• They would have had to do what Ford did.
• Massive reorganization and streamlining that allowed them to stay in business with $0 from us.
• They would become a leaner,  more streamlined business.
• Ford did not even have to declare bankruptcy.

Worst Case #2: They go into bankruptcy

• Even if they did go into bankruptcy they would have been bought up by other companies or private equity firms or simply reorganized under bankruptcy protection allowing them to renegotiate their ridiculously bloated union contracts and come out the other side a leaner more competitive company.
• We have seen numerous companies go into and out of bankruptcy, most of the time it is not the end of the company, they simply reorganize and re-emerge a new, better company.

Worst Case #3: Despite bankruptcy protection they dissolve

• The same demand for vehicles would exist, with two less companies to meet that demand.
• The moment they vanished, Toyota, Hyundai, Volkswagen, Honda, and Ford…would immediately begin extending their operations in the United States by expanding current manufacturing plants and building new ones to meet demand.
• They would all be looking around for unemployed auto employees to offer them jobs at their new plants.  So most of the employees that were laid off would simply get scooped up by these other car companies.

In other words, contrary to what Obama claims, the collapse of Chrysler and GM would not have affected as many people as he makes it out to sound.  In fact, bailing out Chrysler and GM made matters worse for them.

Now that they received an infusion of our money, they don’t have to trim as much fat which means when they come out the other end they will still be more inefficient than all the asian car companies…and Ford.

So why did we bailout GM and Chrysler, such an infinitesimal portion of the employed?  I have two theories.

First, I believe that Obama relies heavily on unions to maintain whatever is left of his support so he must pander to them any opportunity he gets.

Second, I believe it makes for great news, soundbites and photo-ops to play on the nightly news…a testament to his “doing something” about the failing economy even though in reality, it was as effective in helping the economy as using a postage stamp for an umbrella during a monsoon.

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Sources:
GM has 112,000 employees.
Chrysler has 58,000 employees.
Same sites provided bailout dollar information.
Currently employed figures from government bureau of labor statistics.

Categories: Government Failures, Unemployment & Labor Law

Tags: automakers, bailout, Chrysler, deficit, GM, National Debt, recession