Pelosi puts her weight behind motor sector aid
November 13, 2008
By Mike Ramsey and Alex Ortolani
Michigan - US house speaker Nancy Pelosi has thrown her support behind the premise that General Motors (GM), the largest US vehicle maker, is too big to be allowed to fail.
In urging congress to enact emergency aid for the ailing automotive industry, Pelosi rejected calls to let GM collapse and sided with the firm and its allies in trying to prevent a "devastating" domino effect that would cost millions of jobs.
Alan Gover, a bankruptcy lawyer with White & Case in New York, said: "Trying to reorganise the auto industry in bankruptcy would be as close to reorganising the whole US economy as you could get. The vast supply chain involves thousands of businesses, millions of existing jobs and just as many retirees, as well as whole communities and states."
Passage of an industry bailout plan may keep GM from running out of operating cash by year-end, which it says may happen without US help.
GM is the second-biggest provider of private healthcare benefits. It was the third-biggest advertiser in this year's first half.
"It's truly one of those companies that's too big to fail, and everybody understands that," said Nariman Behravesh, the chief economist at IHS Global Insight. "If it does collapse, it could make the recession deeper and longer," added Behravesh.
He said a GM bankruptcy could send the US jobless rate as high as 9.5 percent, up from a 14-year high of 6.5 percent last month, and produce a recession comparable in length to that of 1980/82.
Ford Motor and Chrysler both were likely to be forced into bankruptcy eventually if GM was to fail, said Mark Oline, a Fitch credit analyst.
GM, Ford and Chrysler wanted $50 billion (R521.2 billion) in loans to boost liquidity and cover union retirees' medical costs, said people familiar with the matter.
The trio employs 240 000 people in the US, according to the Automotive Trade Policy Council in Washington, the industry group for the US firms. Health insurance for 2 million people is tied to motor workers' jobs.
While Pelosi did not cite GM by name, she said a vehicle maker's collapse would have a "devastating impact on our economy, particularly on the men and women who work in that industry".
She did not specify the size or the rules for the aid package she sought, whose US sales for this year were headed towards a 17-year low.
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