GM-Chrysler deal could cost 35,000 jobs

updated 4:32 p.m. ET Oct. 29, 2008

DETROIT - If General Motors Corp. acquires Chrysler LLC, it will cost 25,000 to 35,000 jobs at the automakers, according to a Michigan consulting firm.

But the Anderson Economic Group of East Lansing said Wednesday the alternative of Chrysler being sold in pieces would result in many more job losses. A GM acquisition, with possible help from the federal government, is a likely possibility, Patrick Anderson, the firm's CEO, said in a conference call with reporters.

"It's a much bigger job loss and a much bigger taxpayer hit if Chrysler simply goes out of business or is dismantled," Anderson said.

Chrysler employs about 49,000 people in the U.S. and has about 125,000 retirees and spouses.

Michigan, home to Chrysler's Auburn Hills corporate headquarters, would be hit hardest if there was an acquisition. The state would lose 8,000 to 10,000 factory jobs, and the bulk of the 10,000 to 15,000 lost white-collar positions would be in Michigan, Anderson said.

Other states would lose 10,000 to 12,000 factory jobs, he said.

Anderson based his estimates on evaluations of the number of plants, number of product lines and number of jobs in the two companies. He said the estimates don't count losses among auto suppliers or outside businesses that handle the automakers' advertising and legal services.

Anderson estimates all 50 states would feel the pain of the acquisition as auto dealerships closed across the country.

And he added that the industry likely won't be able to support separate headquarters in Michigan for Chrysler, GM in downtown Detroit and Ford Motor Co. in Dearborn, plus the sprawling GM Technical Center in the Detroit suburb of Warren.

"I can't see how, in the environment of the future, we can sustain all four of those," Anderson said. He doesn't expect all four to close, but said parts may be turned over to other entities or other uses.

He also said any consolidation could mean the death of at least a couple of brands, such as Chrysler's Dodge nameplate. In 2004, GM killed off Oldsmobile, the oldest U.S. automotive brand name at the time, after efforts to revive it failed.

GM has been talking with Chrysler owner Cerberus Capital Management LP about an acquisition, and GM has been lobbying in Washington for the federal government to put money into the deal. Cerberus also is talking with the combined Nissan Motor Co. and Renault SA, as well as other automakers, about selling parts of Chrysler.

All three U.S.-based automakers are burning up cash because of an auto industry sales meltdown due to the U.S. economic downturn, but Chrysler and GM are considered to be in the worst shape. Industry analysts say Chrysler could go into bankruptcy next year if it doesn't take on a partner or isn't acquired by another automaker.

Ford isn't part of the GM-Chrysler talks, but Anderson said it could be forced to make drastic changes as well.

"We would expect that Ford would be involved in some kind of restructuring that may involve another supplier," he said.

Anderson said the prospect of the government's Pension Benefit Guarantee Corp. having to take on Chrysler's pension liabilities, increased unemployment benefit costs, and the tax impact on state and local governments are good reasons why the federal government should get involved in the deal.

Peter Morici, an economist at the University of Maryland, takes the opposite tack. He said no one has explained how joining GM and Chrysler would change their flawed business models, which include high union labor costs and products that don't match their Japanese competitors.

"Separately the two companies do not design and make cars as efficiently as Toyota and Honda do, and together they don't design and make cars as efficiently as Toyota and Honda," he said.

He said he believes GM and Chrysler will fail and head into bankruptcy protection even with a merger and government help, causing even larger job losses. The government, he said, likely will be stuck with pension obligation and have to bail out the Pension Benefit Guarantee Corp.

"Sooner or later those automotive pensions are going to hit that pension corporation anyway," Morici said. "The liability is going to be there no matter what they do because either this company is going to fail in the next 12 months or the next 36 months," he said.

Anderson disagreed, saying intervention is necessary.

"It's a much bigger job loss and a much larger taxpayer hit if Chrysler goes out of business or is simply dismantled," he said. "The alternative is very, very expensive for the federal government and for the U.S. economy."

Also in msnbc.com business Answer Desk: The risks of investing extensively in gold Your Career: The repercussions of expressing your faith Interactive: 10 cars we’re looking forward to in 2010 ‘Reaching out’ and the other worst buzzwords of the year   Video: Existing home sales make an unexpected jump

MORE FROM AUTOS

Autos Section Front

GM's Whitacre in no rush to give up his job Ford sees Volvo deal with Geely early in 2010 New GM CFO’s pay exceeds government limits   A Decade of Change for the Auto Industry Ford offers retirement, buyouts to 41,000 Ten cars to look forward to in 2010 GM names Microsoft executive as new CFO Hyundai Motor announces China truck venture Spyker extends deadline on offer to buy Saab Hyundai unveils new Sonata Autos Section Front   Add Autos headlines to your news reader: