Editor's note: the collapse of any of the Detroit Three automakers would have an appalling effect on the U.S. economy and of course, especially Michigan. In addition to all the employment they provide in other sectors of the economy, U.S. automakers are unabashed supporters of union building trades labor for their plant and office renovations and new construction.

The following was written in advance of the visit to Congressional leaders to Washington by top executives of the Detroit Three, who failed in their attempt to seek federal loans to tide over the domestic auto industry. The rescue package is expected to be taken up again early next year, when a more receptive president, Barack Obama and a bigger majority of Democratic lawmakers who are expected be more sympathetic to Detroit's plight will be sworn into office.

That is, if GM can survive that long.

By Robert Scott

With the U.S. Senate prepared to take up the question of a $25 billion rescue package for automakers as early as Nov. 17), partisans are loudly debating the merits of another bailout. But given current economic conditions, the answer should be clear. Government intervention in the form of a bridge loan will allow the industry to survive until the economy stabilizes, new fuel efficient models are introduced, and recently negotiated changes to United Auto Worker (UAW) contracts kick in.

That means saving millions jobs - not only in auto factories, but also at component suppliers, dealers, and elsewhere - when employment is desperately needed.
Other circumstances strengthen the argument for this loan:

• Although domestic automakers made strategic blunders in the past, they have recently made tremendous strides in restructuring. But many of those changes won't kick in until 2010, when new models such as GM's plug-in hybrid, the Chevy Volt, and a new model getting 45 mpg are introduced. New union contracts will also take effect in 2010, which will greatly reduce automakers' many legacy costs.
• The current industry collapse is a direct result of the financial crisis rather than past industry decisions. Nervous consumers are delaying large purchases, sending vehicle sales in the United States to their lowest level in decades. More than 16 million light vehicles were sold in 2006 and 2007. Sales fell to 10.6 million units in October, a 35% decline from 2007 and the lowest absolute level since February 1983. The collapse in light vehicle sales has hit both import and domestic companies. GM sales fell 47% in October, but Suzuki (-48%) and Isuzu (-49%) were equally hard hit. While Chrysler sales fell 38%, Kia's fell 40%. Ford's sales were off 33%, but Nissan's fell 36%. Overall, domestic sales fell 41%, and Asian producers dropped 29%. Every company experienced a sharp drop in sales in October. These declines are particularly troubling because the auto industry is one of the most capital-intensive sectors of the U.S. economy.
• Unionized U.S. automakers are highly productive. The top two most productive auto assembly plants in the United States in 2005 were UAW plants (in terms of hours per vehicle assembled). In fact, six of the top 10 plants were UAW shops. Product reliability for U.S. manufacturers is now approaching that of Japanese producers in some cases. This high productivity has allowed domestic manufacturers to compete with foreign companies that benefit from government subsidies, including manipulated currencies in Korea and Japan that reduce costs by 10% to 20%, and national health insurance systems in most competitive countries that remove the burden of covering costs for existing workers and retirees. Such high-productivity industries are exactly what is needed to ensure future economic growth.
• Union auto workers have already taken substantial hits on pay and benefits. For example, contracts negotiated in 2007 slashed wages for new workers by 50%. In addition, new workers will not be guaranteed any retiree health care benefits, and will not participate in the traditional defined-benefit pension plan. On top of that, the UAW agreed that the responsibility for health care benefits for existing retirees would be transferred from the auto companies to an independent trust, called a Voluntary Employee Benefits Association. Analysts now believe that the labor cost gap between the Detroit-based auto companies and the foreign transplants will be largely or completely eliminated by the end of the current contracts.
• A collapse of the Detroit-based auto manufacturers would result in the loss of 2.5 to 3 million jobs, according to a 2008 study by the Center for Automotive Research (CAR). There would also be a ripple effect throughout the local economies of auto communities across the United States. Furthermore, liquidation of the auto companies would put at risk the pension and health benefits of 1 million retirees and dependents, and could saddle the federal pension guarantee program with enormous liabilities. Under current law, the federal government would also be required to pay for part of the retiree health care costs for pre-65 retirees from the auto companies.
• The automotive industry represents almost 4% of U.S. gross domestic product and 10% of U.S. industrial production by value. The failure of the Detroit-based auto companies would severely aggravate the current economic downturn, compounding the difficulties facing working families and businesses. Revenues to the federal, state, and local governments would drop, forcing cuts in vital social services at a time when they are most needed.
• An airline-style (Chapter 11) bankruptcy re-organization is not an option for U.S.-based automakers. They have already extensively restructured product lines and labor contracts. They would be unable to get debtor-in-possession refinancing to continue operations, and consumers would be unwilling to buy cars from bankrupt companies. Hence, a Chapter 7 bankruptcy liquidation is the only alternative for domestic automakers. The bankruptcy of one or more of the "Big-3" automakers would endanger thousands of large and small parts and services suppliers. Massive job loss and community disruption would result. Increased government payments and tax losses alone would exceed $150 billion in the first three years following bankruptcy of all three domestic auto companies, according to the CAR report. The $25 billion rescue plan is a bargain by comparison.

(The author is with the labor-backed Economic Policy Institute).