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Auto industry’s collapse feared

Southern Nevada analysts and industry officials agree with advocates for the nation’s automakers who say the collapse of the Big Three — or even just General Motors Corp. — could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue.

"It would be crippling," said Jim Marsh, owner of the Chrsyler, Jeep, Suzuki and Mitsubishi dealerships that bear his name.

"That’s just hard for me to consider what that would do to the entire economy," agreed Tyler Corder, chief financial officer for Findlay Automotive Group, which operates 21 domestic and foreign car dealerships.

Wayne Frediani, executive director of the Nevada Franchised Auto Dealers Association, said: "There would be a number of car dealers that would be out of business. It would be devastating to the sales tax revenue of the state of Nevada."

Southern Nevada dealership employees earned $616.8 million in 2007, said Jered McDonald, an economist with the Department of Employment, Training and Rehabilitation.

The 7,400 workers at 77 newcar dealerships in Southern Nevada would not be the only ones suffering if one or more domestic automakers failed. The ripple effect, Corder said, would affect the newspaper and broadcast media throughout reduced ad revenues. Accessorizing companies, body shops and tire shops also would lose business.

Keith Schwer, director of the Center of Business and Economic Research at the University of Nevada, Las Vegas, said the impact of a company like GM shutting down would extend even to Las Vegas’ main customer base: tourists.

Failure of an automaker would undermine consumer confidence, causing many to drop plans for vacations in Las Vegas, he said. Other potential tourists might just decide to put their money into slot machines closer to home rather than coming here, he added.

While Southern Nevada has no significant auto parts manufacturing plants, Southern Nevada would feel the aftershocks of any automaker failures, said Terry Culp, business manager of the Management Assistance Partnership at UNLV

"I think it certainly would be a substantial blow to the United States if we lost all the automakers," Culp said. "There would be a lot of jobs that would be lost as a result."

Corder and Marsh agreed that the failure of one of the Big Three could trigger the collapse of auto parts makers for both domestic and foreign vehicles, making it harder to get parts for many vehicles.

Industry supporters are offering such grim predictions as Congress weighs whether to bail out the nation’s largest automakers, which are struggling to survive the steepest economic slide in decades.

"We’ve got to do this because the cost of inaction is so high to communities, to workers, to companies," said Sen. Sherrod Brown, D-Ohio. He was among many lawmakers worried that an industry collapse would be devastating for everything from school districts to small businesses.

Even if just GM collapsed, the failure could bring down the other two companies — and even the U.S. operations of foreign automakers — as parts suppliers run out of money and shut down.

A study by the Center for Automotive Research in Ann Arbor estimated that the failure of Chrysler LLC, Ford Motor Co. and General Motors Corp. would eliminate up to 3 million jobs, including those at parts suppliers and smaller businesses that rely on the automakers.

State, local and federal governments would lose more than $150 billion in tax revenue over three years, the study said.

Next week, Congress plans to consider giving the auto industry part of the $700 billion Wall Street bailout during a lame-duck session.

Opponents of the idea say government money will just delay the inevitable demise of companies that are on death’s doorstep because of years of mismanagement and labor costs that are far higher than their global competitors.

"How is this money going to make a positive difference in creating a new competitiveness?" asked Sen. Jeff Sessions, R-Ala.

An automaker could file for Chapter 11 bankruptcy, which would allow the company to reorganize its finances, cancel contracts, reduce its debt and potentially emerge from bankruptcy as an ongoing concern.

Marsh estimates that a Chapter 11 filing would cut an automaker’s sales by half but said failure of a domestic automaker would be even worse.

In both cases, consumers would be reluctant to buy cars from the bankrupt company for fear they couldn’t get warranty service or even parts — if the automaker closed, he said.

"Obviously, either one would be pretty devastating," Marsh said.

Rob Charles, a partner with law firm Lewis & Roca, agreed.

An automaker in Chapter 11 could continue operating at least for a while, but there’s no assurance the judge would allow the company to cancel union wage and benefit contracts, Charles said. The company in bankruptcy would be at a competitive disadvantage, hindered by the need to win court approval for major decisions, and it would face large bankruptcy expenses and still might fail, he said.

Yet, Lenard Schwartzer, a bankruptcy attorney with Schwartzer & McPherson, took the opposite position: "In the long run, General Motors would be better off it filed Chapter 11 and shed some of its obligations to the retirees and the current contracts." The bankruptcy route probably isn’t feasible politically, Schwartzer said.

Review-Journal writer John G. Edwards contributed to this report.

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