1) GM declares chapter 11.
2) Consumers dramatically reduce purchases of GM vehicles.
3) GM slashes prices to hold onto sales.
4) GM cuts back sharply on manufacturing new cars.
5) GM cuts back sharply on purchases of parts and services from suppliers.
6) Many suppliers follow GM into bankrupcy or even liquidate.
7) All other automakers in the U.S. experience significant supply chain disruption, including Honda, Toyota, Nissan, F and C.
8) Other automakers have trouble manufacturing vehicles as they search for alternative suppliers and retool factories.
9) The only vehicles on dealer lots are those made overseas.
10) Either F or C follows GM into chapter 11.
11) Cycle repeats and intensifies.
12) Because of the dim prospects and the current credit crisis, GM cannot obtain Debtor in Posession credit, and it is unable to repay dealers for incentives, and it can’t repay suppliers for parts and services.
13) Dealers follow GM into bankrupcy.
14) More suppliers follow GM into bakrupcy.
14) GM moves from chapter 11 to chapter 7 … liquidation.

The second domino is the most important, and it looks like the one you disagree would happen. If I am buying a $35000 machine, I want to expect that I will be assured warrenty coverage and spare parts and servicing. That would push me to avoid an endangered OEM.

I don’t see how any of the domestic production can be expected to survive. The supply chain is very interconnected. This is where the estimates for 2 to 5 million jobs being at risk.

Pick a domino where you think the sequence will stop. I think there are two many reinforcing feedback loops to rein this in after it commences.

You raised some good points. I’m still undecided on whether a a bailout would help GM or not, but I don’t agree that not doing it would mean we cease to make autos in the U.S. Many Americans work for foreign automakers – not ideal, maybe, but they still make cars here. Also, GM won’t be destroyed, but bankrupt – that is, protected by courts from creditors while it restructures. That will mean a lot of jobs lost at GM and its suppliers, but it won’t mean GM will vanish.

GM is faced with the potential destruction of their entire company, and the collapse of the economies of 3 states, and the GOP is saying that this is a good thing … better for all concerned … in the long run.

Of course GM can’t take that frustruation out on politicians, but Friedman is a handy alternative target since he is playing the know-nothing cheerleader everytime he opens his mouth.

Michigan was already at 18% (U6) unemployment as much as 4 years ago. I haven’t found more recent state U6 numbers, but it must be over 22% by now. Remove GM and suppliers, and we’ll be up to 30% or 35%. It would be far, far cheaper to avert the collapse today than to try to do any cleanup of the aftermath.