The real costs of not bailing out the auto industry…

Someone asked me on twitter why I batted around numbers like $100 billion when it comes to what the direct cost to the taxpayers is if we *DON’T* bail out the auto industry.

Well the number is a guess, based on figures I’ve heard batted around on NPR, CNN, and a number of other news sites.

But here is what it’s based on:

PBIC – This is the Pension Benefit Insurance Corporation.  This is a federal agency, much like the FDIC and SIPC that guarantees pension payments should a company with a pension plan go bankrupt.  This is a direct taxpayer cost.  If the “Big-3″ automakers go bankrupt, we will pay any and all costs associated with them bankrupting off the debt owed to their current and former workers.

Lost Revenue – Obviously, if the companies go bankrupt and lay off a significant portion of their employees, the local, state and federal governments will lose substantially when it comes to lost tax revenue.  This is money that MUST be made up from somewhere.  Enter the rest of us.

Unemployment Benefits – Obviously we’ll be paying long-term unemployment to most of the people displaced.

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Now – take that number, whatever it is, and multiply it by every business that is downstream of the big-three.  You see, our automobile “manufacturers” are actually automobile “assemblers”.  More than 70% of the material used is built and purchased from hundreds of smaller companies.  From companies that supply the “bin parts” (screws, washers, nuts, etc) to companies that supply the electronics, interior, engine components, etc.

A large number of these will go bankrupt as well, some will survive.  This will unfortunately have a DEVASTATING effect on the “southern auto makers” (which loosely translates to the foreign car companies that chose to move their assembly to American soil)

If this happens the fall-out will be even more disasterous.  Because they will most likely pull their manufacturing back home, to Japan, China, Korea, etc.  That will result in an even higher trade defecit, because as you all know, with the big-3 out of the picture, we’ll all be buying foreign cars.

Now maybe $15 billion dollars doesn’t seem like such a problem.