What Happens if Congress Lets the Auto Industry Go Under?

Bankruptcy almost certainly – for one or two of the big three automakers, and for the credibility of US policy.   Literally hundreds of thousands of jobs would be lost rapidly, with the shock waves disrupting communities across the country from suppliers folding, dealers shutting down, home prices plummeting, city and state budgets battered.  The indirect ripple effects of the bankruptcy would likely be worse, deepening pessimism, weakening banks further.  The resulting economic turmoil will surely cost far more in lost revenue, unemployment insurance, food stamps and neighborhood devastation than the amount requested for the bridge loan.  And, of course, the US would have missed an opportunity to drive the auto companies to move far more rapidly towards building the efficient cars of the future.

It’s unclear whether an auto company can survive bankruptcy – buying a car isn’t like buying a seat on a plane.  But there is no question that the economy generally would pay a fearsome price. Everyone across the world assumes that the industrial governments will step in to save their core industries.  Failing to do so won’t be viewed as a sign of our free market virtues; it will be viewed as an ominous sign that the economic crisis has surpassed the capacity of the US government to respond.  We will discover whether the collapse of a core industry may be just as devastating as the collapse of the banks the Treasury has deemed to big to fail.