US motor industry warns of catastrophe if big player falls

Advocates for US car makers are warning that the collapse of the Big Three manufacturers – or even just General Motors – could set off a catastrophic chain reaction in the economy, eliminating up to three million jobs and depriving governments of more than €113bn in tax revenue.

Industry supporters are offering such grim predictions as Congress considers whether to bail out the nation’s largest car makers, which are struggling to survive the steepest economic slide in decades.

“We’ve got to do this because the cost of inaction is so high to communities, to workers, to companies,” said Senator Sherrod Brown, a Democrat. He was among many politicians worried that an industry collapse would be devastating for everything from school districts to small businesses.

Even if just GM collapsed, the failure could bring down the other two companies - and even the US operations of foreign makers – as parts suppliers run out of money and shut down.

Concern about the car makers hit new heights on Friday when GM and Ford reported they spent a combined £91.3bn (€109.3bn) more than they took in last quarter. GM said it could run out of money by the end of the year.

Ford said it could last through 2009, but only because it arranged a hefty credit line last year.

All this comes after tight credit and economic uncertainty in October reduced US auto sales to their lowest level in 25 years – with no rebound in sight.

If the industry failed, among the hardest-hit communities would be Lordstown, Ohio, a village of 3,600 people about 50 miles east of Cleveland that has been home to a GM factory since 1966.

If the plant closed, Lordstown would lose up to 70% of its budget, a scary scenario that proponents of a multi-billion dollar bailout say would be repeated across the industrial Midwest.

“If they went completely under, obviously it would financially devastate us,” said Michael Chaffee, a teacher and Lordstown’s part-time mayor. “It would be catastrophic for our whole area.”

Without GM and nearby parts factories, he said, Lordstown’s £2.6m (€3.1m) budget would take about a £1.9m (€2.3m) hit that would almost certainly require police redundancies and drastic cuts in park programmes.

A study by the Centre for Automotive Research in Ann Arbor estimated that the failure of Chrysler, Ford and General Motors would eliminate up to three million jobs, including those at parts suppliers and smaller businesses that relied on the car makers.

State, local and federal governments would lose more than £94bn (€112.6bn) in tax revenue over three years, the study said.