Summary
As stock markets around the world continue to fall, a great surge of bailout talk has surfaced. Among these various cases, the situation regarding Detroit’s Big Three seems to be the most discussed. Executives from Ford, Chrysler and General Motors were unsuccessful in their attempts, last week on Capitol Hill, at acquiring the $25 billion bailout. Congress was evidently unsatisfied with the auto companies’ lack of plans. The leading Democrats are urging the three formerly-powerhouse automakers to outline, in great deal, their financial circumstance, short-term monetary needs, and a feasible long term plan. Unless Congress authorizes the $25 billion bailout, it is likely that Detroit’s Big Three will declare bankruptcy in the upcoming months.
The Role of Government in a Market Economy: Government Involvement
Ford, Chrysler, and General Motors are asking the government to intervene and rescue their privately-owned companies. The main connection to the concepts in Chapter Three: “Role of Government in a Market Economy” is government involvement. However, the government involvement is not due to any of the reasons described in our textbook. There is no apparent lack of information nor are there any signs of market shortcomings. Third-effects may seemingly be present, but are actually simply direct consequences of the failing auto industry. Although the act of possible government intervention does not fit the outlined textbook definition, it can definitely be considered as a form of government intervention. Perhaps the sole fact that the government may intervene, despite none of the textbook reasons, is a sign of the economic hard times we are facing. The recession has caused general confidence in the economy to falter and hundreds of thousands of jobs to be lost. Congress debates now whether or not to grant the three automakers the bailout with millions of jobs on the line. Of course, a granted bailout would save many jobs, but perhaps now is a good time for the government to leverage the automaker companies into making environmentally-friendly vehicles. Conversely, a denied bailout would result in many lost jobs across the nation. A large portion of the American work force is depending on the bailout to be passed in order for them to keep their jobs. A denied bailout may result in more layoffs by Ford, Chrysler and General Motors or perhaps even bankruptcy filed by one of Detroit’s Big Three. Either way, the general consensus is felt that the job market looks to take a hit if the bailout is not granted.
Reflection
When I first began following the bailout situation, I thought that it would be in the best interest of everyone that Detroit’s Big Three receive the $25 billion bailout. It would be commonplace to think that rescuing the three automakers would save jobs and in due course, increase consumer spending and provide economic expansion. After thinking more carefully however, I came to a conclusion that this would not be the case. Firstly, I do not believe that millions of jobs will be lost as the automakers could easily file for bankruptcy under Chapter 11 (essentially permits reorganization of a company) and the labour force could remain employed. Obviously the reduction of wages and benefits would be necessary in order for companies to remain competitive with Asian automakers like Toyota and Honda, but I am sure many would agree that lower wages and benefits are better than none at all. Consumer spending would not increase by much as people would rather save their money in a time where recession is ever-looming. Any economic expansion would be miniscule and unnoticeable. A $25 billion bailout for Detroit’s Big Three is not the solution; it would only slow the bleeding. In order to stop the bleeding entirely, the companies need to be restructured and retooled through bankruptcy under Chapter 11. No, bankruptcy of Ford, Chrysler, and General Motors will not send the New York Stock Exchange into oblivion, but rather it is what analysts are sensationalizing and what these three companies are hoping will push Congress towards granting them the $25 billion bailout. In the long run, bankruptcy will force these three formerly-powerhouse automakers to focus on creating cleaner, more efficient, and overall better cars, rather than polluting the environment with their trucks and SUVs. As a final note, I hope Congress denies them of the $25 billion bailout plan and lets Detroit’s Big Three be reduced to simply Detroit’s Three.
2 comments:
You made several valid points about the probable third party effects that would impinge on employees of the auto companies; and I can certainly understand what direction you’re coming from when you say you’d like Congress to deny the $25 billion bailout. However, I disagree with you on the whole, because I think it would be rather a good idea if the U.S. Congress voted to bail out the Big Three. I know that General Motors, for one, has already begun development of the Volt – an electric car similar to their original EV1 – so they wouldn’t need that extra push to “focus on creating cleaner, more efficient, and overall better cars”. Deciding to withhold the money now would only hurt the progress that General Motors has made so far. I’ll admit, though, that I might be more than a little biased seeing that the Canadian branch of General Motors sponsors my robotics team. (Since auto companies have been making fewer profits as a result of the recent market slump, we received less funds this year.)
- Krista Wong
American automaker companies provide millions of jobs for the American people. However, the automakers do not deserve the 25 billion dollars of taxpayer’s bailout money in my opinion. First of all, there is the issue of which businesses should receive a bailout. If Detroit’s big three receives a bailout, than why shouldn’t other large companies who are also in financial trouble receive bailout as well? By giving the auto companies the bail out, the government also creates pressure and more importantly, competition for other businesses that have made the right decisions and are not currently facing bankruptcy. Also, even if Detroit’s big three were to fail, there are still many auto companies which are operating throughout the US which hire American workers, such as Honda and Toyota. These companies are able to survive during this economic crisis because they have made more affordable cars that are less harmful to the environment, which is what America needs in the future.
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