Automotive Industry Bailout Essay

Submitted By scottyzbenz
Words: 1227
Pages: 5

Motor City or Bust The American citizens have faced trying times and even tougher sacrifices in the last few years. The stock markets crashed, a severe housing crisis evolved, and then there was Motor City. The Motor City was on life support and needed financial rescue like never before. There was no mystery involved for the ridicule and objections to investing more money into the very hands of top executives at the root of a corporation’s demise. Head officials faced a crucial decision in which 70 percent of Republicans alone and 61 percent of the citizens opposed providing bailout money to the falling Motor City. As rational as it may have appeared to not show support for this decision, the bailout was actually essential. There were many approaches as to how Motor City could have been revived, yet it was a difficult decision for the American citizens watching their hard earned, taxpaying dollars fund a failing company. When markets fail, as they did for both autos and banks in 2008, government should have the ability, in fact, the obligation to step in. In fall 2008, Chrysler, Ford, and General Motors (GM) Corporations known as the “Big Three” or “Motor City,” headed to Washington asking for Federal Emergency Funding in the form of tax payer’s money. The CEOs of these management blunders didn’t ask for millions, instead, they asked for an unaccountable $34 billion in help. With the fiscal and the housing sector already in a tailspin, in the eyes of the public there couldn’t have been a poorer time or worse business to support. Consequently, Ford took on a more suitable in-house solution not requiring a handout from the government. One of the major reasons for the auto industry crisis was years of market share losses by the Big Three. As recent as 10 years ago they had about 70% of U.S. auto sales, in 2008 they had 47% (Isidore, 2008). Another blow came in the form of record high gas prices, which deeply cut into demands for pickups and SUVs. Observers blamed executives for over producing those gas-guzzling SUVs and pickups and ignoring the fuel-saving technologies of their Japanese rivals. Republicans believed that the American automotive industry, with its shrinking market share, is in part inefficient from poor managerial decisions and lack of ingenuity, but mostly from the back-breaking labor agreement with the United Auto Workers Union (Zeigarnik, 2008). While there remained several other car makers that luckily didn’t share the same misfortune as the Big Three, letting these corporations fail really wasn’t a practical option for yielding positive results for the economy. If the companies were sent through a “managed bankruptcy” financed by private capital, as suggested by presidential aspirant Mitt Romney, there would have been even greater challenges. Private investors would have had to be willing to pick up the debt. In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines. Even after diligently speaking to all conceivable providers of required funds, not one had the slightest interest in financing those companies on any terms (Bowmer, 2011). Fundamentally, the U.S. stood at a crossroads. If the government had allowed G.M. and Chrysler to collapse, the shut downs would have echoed through the entire auto sector and beyond. Before the automotive meltdown, Chrysler claimed to employ 100,000 workers in 50 states, held about 4,000 dealerships with 6,000 suppliers. Direct employment in manufacturing and warehouse facilities was just over 60,000 in 16 states. Additionally, Chrysler employed 9,350 manufacturing workers in Canada plus another 5,711 factory workers in Mexico. Meanwhile, GM reported it had 47 manufacturing and warehouse facilities in 13 states, 21 of those in Michigan. Working in those facilities were 82,849 employees. GM also claimed to…