Digging out Detroit

The well-informed and rarely-in-error folks at Kiplinger Business Resource Center have posted a note predicting the federal government will bail out U.S. automakers.

Titled, “Detroit Three Will Get $50 Billion in Loan Guarantees,” the highlights of the report include:

“Does Uncle Sam have a choice on bailing out the Detroit Three? Not really. The three U.S.-brand automakers don’t have enough cash. Miserable sales mean little money coming in from dealers. Borrowing is out of the question with the credit ratings of all three companies in the tank. And no company wants to acquire them.”

“General Motors (GM), Ford and Chrysler could collapse in a heap with their sales likely to remain in free fall through early next year, at a minimum. GM’s fortunes are dropping the fastest. Its cash burn — spending over revenues — is exceeding $1 billion a month. Even with gigantic cuts to both its labor force and its new car development, the automaker could be out of gas by spring as liquidity evaporates. Ford’s and Chrysler’s outlooks are marginally better.”

“A failure of the Detroit Three would send a tsunami through the U.S. economy, crashing right on Main Street. Around 1 million workers at companies supplying parts and equipment to the automakers would lose their jobs, and the layoffs would quickly spread to 1.7 million more in communities’ service, retail and manufacturing sectors, which are dependent on spending by autoworkers and supplier employees, according to the Center for Automotive Research, an auto industry consultancy. The immediate hit on personal income would be $150 billion the first year and around $250 billion over the next two years.”

Link here for the full report.