To what extent was the interventionist approach of the U.S. government towards the auto industry in 2008-9 justified?
DP Candidate No.: 002120-028
Supervisor: Mark Cowe
Date of Submission:
Word Count: 3951
The global recession along with the soaring gas prices hurt the auto-industry very badly. It was so severe that two out of the three American automakers, General Motors (GM) and Chrysler, would fail and liquidate without government intervention. About 1.1 million people were hired in the American auto industry (Welch, 2010), making structural unemployment a big issue. However the two firms were burning through billions of dollars in months, making proper …show more content…
Hence, on December 20th 2008, the Bush administration made bailout loans, of a total of $13.4billion, to GM in parts available over a period of two months (till February 17 2009) (Bowner, 2011). This was followed by a change in the government administration. The Obama administration was now in charge. They asked for a revival plan of the firm by March 29th (Bowner, 2011). The deadline was not met by GM, which resulted in the forced resignation of Rick Wagoner. “Mr. Obama announced the next day that he would give the firm 60 days to complete deals with bondholders and unions, it would be kept afloat during this time, but asserted that it would be forced into bankruptcy if agreements were not reached.” (Bowner, 2011). On May 21, GM announced it had reached a deal with the UAW (United Auto workers is a labor union of all workers in the auto industry), as required by the government. However it filed for bankruptcy on June 1st, getting a successful appeal for chapter 11 which allowed it to run as a new company. What this means is that it could terminate old supplier and labor contracts. Also it could get rid of unwanted assets like golf courses and 48 million square feet of floor, from the ancient GM, which was mostly unused. This meant a