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Economist: Big Three Really Need Up To $125 Billion

Mark Zandi, chief economist for Moody's Economy.com, is testifying before Chris Dodd's (D-Conn.) Banking committee right now and he just said something probably no one saw coming:

"Under the most positive outlook," Zandi said, the Big Three "will need between $75 billion and $125 billion to avoid bankruptcy over the next two years."

Gulp.

That sum significantly exceeds the $34 billion in direct loans being sought right now by GM, Ford and Chrysler.

Zandi based his estimate partly on continued low vehicle sales.

"Thirty-four billion and a plan may not be enough to return the automakers to viability," Zandi said. "Policymakers must prepare for this eventuality."

In answering a question from Sen. Richard Shelby (R-Ala.), Zandi engaged in a little, probably, unintentional arm-twisting, essentially telling the Senate panel that if the government doesn't give the Big Three money now, taxpayers will be on the hook for much more later on.

Zandi said that without government money, Big Three bankruptcy is inevitable. If that happens, the government will have to finance the Big Three in bankruptcy because they won't get private bankruptcy financing.

Further, and most chillingly, Zandi said that the federal government would have to back all the warranties of every new car sold because without such a guarantee, Zandi said, no one will buy a new car from a bankrupt automaker.

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  December 4, 2008; 12:49 PM ET
Categories:  The Ticker  | Tags: Chrysler, Ford, GM, General Motors, automakers  
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Next: Dec. 4, 2008

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