What Automaker Collapse Means For The Nation

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The auto industry is not getting the bailout it asked for. We explore the impact a bailout failure could have on the economy as a whole.

MADELEINE BRAND, host:

NPR's international business and economics correspondent Adam Davidson is here now. Hi, Adam.

ADAM DAVIDSON: Hey, Madeleine.

BRAND: Well, as Yuki just said, the White House is considering using $15 billion of TARP money now for Detroit. How would that work?

DAVIDSON: Well, we actually don't know. Dana Perino, the White House press secretary just said, give us a little while. We're working on it. It's not clear if the White House would put in some of those requirements that Yuki talked about dealing with pay or the need to restructure or environmental, you know, restructuring of the auto industry. We just don't know yet. As Yuki said, the Treasury Department of the White House had broad latitude on how to spend that $700 billion. But, you know, you can imagine there are people throughout Treasury, in the White House and even the Fed, you know, crunching over numbers, crunching over plans and trying to figure out how to make this work.

BRAND: Fifteen billion dollars, though, would that even be enough to avoid collapse of any of the car companies?

DAVIDSON: Yesterday, the Wall Street Journal came out with a survey of economists. It said the average length of this recession is that it will last until June 2009. If that's true, if we have a six-month recession and we get out of it, you know, I think there's a pretty good chance that 15 billion will do the trick. But if, as some economists say, this is a much more extended recession with a lot of unemployment and a huge number of people deciding not to buy cars, I don't think there's any chance that 15 billion is enough and, you know, we'll be having this conversation some time in the future.

BRAND: Mm hmm. Well, what are the international implications if any of this happens? There are a lot of companies worldwide that depend on the Big Three doing business.

DAVIDSON: Yeah, I mean, just this morning, I was looking at them, just as financial companies because, you know, certainly GMAC we've heard of, and Ford also has its own financial arm and just - if these were banks, if these were just financial companies, they have tremendous international ties. They have, you know, they both buy and sell investments and financial instruments from banks and others all over the world. Cerberus Capital Management, which owns Chrysler, is a major global player. They own companies in all sorts of industries all over the world.

So, there's no question this would have massive reverberations. It is the kind of chaotic unclear sort of thing like what we saw with Lehman Brothers, where Lehman went down and you saw other things that you didn't even think were connected to Lehman collapsing. Now, would it be as bad as Lehman or as bad as we thought Bear Stearns might have been? We just don't know. But, you know, I think it's fair to say that many, many countries all over the world would have some effect.

BRAND: You know, Adam, I've been hearing the D word more and more recently. How serious is that in terms of a possibility if nothing happens or if the TARP money doesn't - it's not enough to help the Big Three? Could we then fall into a depression?

DAVIDSON: Depression, I mean, first of all, one thing that is important - first of all, there's no technical definition of a depression. We don't know what that is. It's just a time that's really, really bad and much worse than a recession. If all three auto companies truly went out of business, and everyone who works for them or their suppliers lost their jobs, I mean, you'd start talking about unemployment probably above 10 percent. You'd start talking about a massive, massive adjustment to the U.S. economy in a very short period of time. Would that qualify as a depression? It would be pretty close.

But, of course, it wouldn't be all three auto companies collapsing instantly and every single person losing their job. Ford, for example, says they're OK. They're doing OK. You know, GM is probably the worse for wear but even they, you know, they own factories, they own buildings. There is a pipeline of products so, even in bankruptcy, they would continue. So, I think that, you know, this has been a big political process, there's been a lot of people with an incentive to sell this as the worst tragedy that could ever happen. It would be awful. I don't think we'd be talking about 1930s era, 25 percent unemployment, massive misery, people dying of hunger in the U.S. That seems way off.

BRAND: NPR's international business and economics correspondent Adam Davidson, thank you.

DAVIDSON: Thank you, Madeleine.

BRAND: And for more on the auto bailout, visit NPR's Planet Money blog and podcast. It's at npr.org/money.

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