Premium Essay

The Automotive Bailout

In:

Submitted By clahaie
Words 3848
Pages 16
Running head: AUTOMOTIVE BAILOUT

The Automotive Industry Bailout: Rewriting History
ECON 625: Managerial Economics

Abstract
The automobile has long been a symbol of American growth and prosperity. Throughout the 20th Century owning and driving a car was an essential part of everyday life for vast majority of U.S. citizens, but few took much time to think about how they were manufactured. Early in the 21st Century, as the U.S. economy began to trend downward, it became apparent that two of the three primary automakers were in significant financial peril. With government aid already being allocated to some of the nation’s largest financial institutions, difficult decisions had to made as to how to approach the alarming crisis at the heart of an industry woven throughout the lives of so many United States citizens.

Introduction
Beginning in the early twentieth century, automobile makers began marketing and ultimately selling cars to middle-class Americans. It did not take long for a deep love affair for cars to develop across the nation, and ownership became woven into the fabric of the “American Dream”. The invention of the assembly line in the 1910s made automobiles relatively inexpensive, and by 1929 it is estimated that American car companies were producing 5.3 million cars per year (Miller-Wilson, n.d.). The automotive industry surely had its share of ups and downs during the 1900’s, with two World Wars, the Great Depression, an oil crisis in the 1970’s, amongst many other challenges. Despite such trying events, it wasn’t until late in the twentieth century that signs of trouble began to show within the “Big Three” United States based automakers: General Motors, Chrysler, and Ford Motors. Soon after the turn of the 21st century, it became apparent that two of the automakers, General Motors and Chrysler, were in extreme economic peril. Despite

Similar Documents

Premium Essay

Us Automotive Bailout of 2008

...2008 Auto Bailout Cause and Effect Essay It is argued that America invented the automotive industry when Henry Ford introduced the Model T to work lines in 1908. Since then the American auto industry has been known as the most successful in the world, with Ford, Chrysler, and General Motors leading the way in innovative technology and design. These “Big Three”, as they are called, hold ties in every civilized continent, and sell millions of cars every year. Yet at the turn of the 21st century, the fortune of these companies began to wane. Oil prices skyrocketed, and the model lineups for American cars were unable to keep up with the demand for fuel efficient vehicles. Eventually in 2008, Chrysler and GM were bailed out by the government with a 80 billion dollar loan. America was largely divided on this issue, with valid arguments on both sides. Overall conservative parties were against the bailout and liberal parties for it. Political motivations aside, the 2008 automotive bailout was necessary for hundreds of thousands of Americans to keep their jobs, and to sustain one of the U.S.'s largest industries. Before the oil crisis began, American auto makers' primary concern were foreign imports. The Japanese had found a way to produce an affordable and reliable car while still turning a profit. On top of that, they had perfected the industrial technique of vehicle production, churning out more vehicles per day than any other country. As a result, U.S. Car makers were forced to increase...

Words: 1004 - Pages: 5

Premium Essay

Communication to Business

...George Brown College School of Business Bailout or Bust? Case Study Noelle Nurse Tran Monica Molina BUS 1038 Professor Joyce Manu April 5, 2013 A perfect combination of unfavourable factors contributed to a major automobile manufacturing industry crisis in North America in 2009. The auto manufacturing industry had taken such a dramatic turn from being large and successful to becoming an industry full of debt and bad reputation; especially for three big and important companies: General Motors, Ford Motor and Chrysler. The “big three”, as they call it, had faced a major turndown leaving thousands and thousands of employees without jobs as a result of a series of bad long term “strategic “decisions. To aid these large industries, the government offered to help, by bailing them out with billions of dollars. This was a very risky decision from the government because of the size of the bailout; hence they needed to keep an open eye on these companies to make sure that this large amount of money was being used wisely. One of the ways the government was taking cautions was by examining the actions being taken by Japanese companies (Toyota Motor, Honda Motor and Nissan Motor) facing the same situation without requiring any government bailout. Their response had been the implementation of a more intelligent strategy, for example, Honda Motor reacted by closing down its plants for 13 days to reduce the production of even more cars they were aware they could not sell....

Words: 1682 - Pages: 7

Premium Essay

The Role of the U.S. Congress in the Auto Bailout

...THE ROLE OF THE U.S. CONGRESS IN THE AUTO BAILOUT The Role of the U.S. Congress in the Auto Bailout Chandria Metevia April 8, 2012 Dr. A. Christophe General Motors General Motors Corporation (GM) is the world's largest full-line vehicle manufacturer and marketer. Its brands include Chevrolet, GMC, Buick, Cadillac, Saturn, Hummer, Saab and Pontiac, which was discontinued in 2009. Opel, Vauxhall, and Holden comprise GM's international nameplates. GM system of global alliances, GM holds stakes in Isuzu Motors Ltd., Fuji Heavy Industries Ltd., Suzuki Motor Corporation, Fiat Auto, and GM Daewoo Auto & Technology. Other principal businesses include General Motors Acceptance Corporation and its subsidiaries, providers of financing and insurance to GM customers and dealers. The company has approximately 326,000 employees. (referencebusiness.com) General Motors is one of the world's largest auto manufactures. . It was the world’s largest car maker from 1931 to 2008, when it was surpassed by Toyota (newyorktimes.com). The company was founded in 1908, and today manufactures cars and truck domestically and internationally. For most of the 20th century, General Motors was the biggest company in the industry worldwide. It not only led in automotive innovations, but it helped to define the new bureaucratic multinational corporations that shaped the post-war economy. Chrysler Chrysler LLC, for years America's third-biggest automaker, is a U.S....

Words: 1234 - Pages: 5

Premium Essay

Why Does Big Corporations Move to Another Country to Save Revenue?

... This dialogue usually refers to the great economic bailout organized by the government and paid for by the people, however is not every circumstance in which the government has spent money in some way or another paid for by the people via taxes? That is an argument for another time. The next most popular economic anecdote with which the media uses to boosts its ratings is concerning the major three United States based automotive corporations: Ford Motor Company, General Motors Corporation, and Chrysler. The bailout of these automotive manufacturing corporations has stirred great debate within the walls of the Capitol. The proponents of the bailout state that even if we do not go through with a bailout for these automotive manufacturing companies, the country in some way or another will ultimately being paying the same – if not an increased – amount of money to support all of the people that will lose their jobs if these corporations are to go under (Graves). The people against the bailout say that these corporations are coming to the government due to the bailout of major banks and insurance firms and wanting “a piece of the pie” for themselves. There are also people that are in between arguments saying that the country cannot allow a bailout to these corporations until certain restrictions can be placed on the way that the corporations can spend the money – a state of mind that was likely brought on by the previous bailout scenarios; however, if restrictions are incorporated...

Words: 1523 - Pages: 7

Premium Essay

General Motors and the Financial Crisis

...Table of Contents Introduction ............................................................................................................................... ................... 1 Overview of the Financial Crisis and the Automotive Industry in 2008 ....................................................... 2 Impact of the Financial Crisis on GM ............................................................................................................ 3 North American Demand .......................................................................................................................... 3 Crude Oil ...............................................................................................................................................3 Product Segment................................................................................................................................... 3 Internal/External Competition .............................................................................................................. 3 North American Supply ............................................................................................................................. 3 Labor Costs............................................................................................................................................ 3 Raw Material (Steel) Costs .......................................................................................................................

Words: 2137 - Pages: 9

Premium Essay

Images of Change

...Course Project Proposal The ideal of this project proposal is to compare and contrast General Motors and Ford which have undergone fairly substantial change in the recent past; and how they handled the pressure of change. Lapratt04@yahoo.com HRM-587-12043 Managing Organizational Change Professor Joseph Phillips Due September 7, 2014 Abstract Ford and GM experienced serious issues during the pre and post TARP causing them to restructure and change how they do business. Each of them reacted to these pressure differently. Ford Motor Company as one of the greatest automobile manufacturers of all time started under the leadership of Henry Ford in Detroit, Michigan. His first production was in 1903, the Model A, with an under the floor engine selling for $850. In the first season it sold 1,708 cars (HISTORY of Ford Motor Company, 2014). Whereas General Motors was founded in 1902 by William Durant, who saw that the automobile would one day replace the horse-drawn carriage. The company did not really catch on until 1908, and at first, it was just a Buick holding company. At the end of 1908, however, GM had acquired Oldsmobile, and in 1909, they bought Cadillac, Elmore, and Oakland. The early 1900s were a difficult time for auto manufacturers; the market crash of 1907 adversely affected a lot of small companies, which relied on the banks for credit. Durant saw the economic downturn as an opportunity; he bought smaller car makers, as well as companies that built auto accessories...

Words: 2106 - Pages: 9

Premium Essay

Macroeconomic Project 2

...paper analyzes and summarizes how the automotive industry is impacted by the macro economy. In helping my friend Rick expand his small manufacturing plant that produces parts for the auto industry, I’m going to identify a brief history of the automotive industry, how it impacts the GDP, the unemployment rate, and the inflation rate as measured by the Consumer Price Index (CPI). The supply and demand of the automotive industry as well as the profits derived from the sector are clearly impacting by then macroeconomic policies. The industry’s history demonstrates the trends it follows in the business cycle and how economic indicators have impacted the performance of the industry over the years. The measure of production, interest rates, real GDP, automotive sales and inflation and unemployment are some of the most compelling instruments that can be used to assess the state of the automotive industry. Business Cycles The U.S automotive industry saw a steady expansion from its inception until 1978 in which where production reached its all-time peak. The industry showed a small contraction and a quick recovery leading to its peak between 1972 and 1976. In the early 1980 there was a big drop in production units and the industry fell into its first true recession. The industry recovered in the mid 80s peaking in 1988, but never reached its previous high before falling into another recession that lasted from 1990 to 1992 (Smith, 1996). The automotive industry’s production rates have...

Words: 2902 - Pages: 12

Premium Essay

Competitive Strategies and Government Policies

...regulation and government policy. Globalization and the effects on pricing, and price sustainability of profit and those mergers are an important piece to understand in the topic of Honda and their automobile industry and how it works for those innovating and running the business. The demand on a vehicle that has efficient fuel economy seems to be increasingly important among the economy. Continuously rising in the market for automakers can be challenging as these elements are strategically supported to progress in this market. The global automotive industry offers plenty of business drama, and Fiat’s recent purchase of Chrysler’s assets, one of the United States “Big Three” automakers, is enough of drama to produce a trilogy at the theater, with each movie running for two and a half hours. This horizontal merger, or partial horizontal acquisition, entails the United States (US) Governments involvement with its ailing domestic automotive industry. At the core of this merger is the inability of the US automakers to match the aggressive technological advancements of its global competitors like Fiat. Small, fuel-efficient cars are expected to save Chrysler as the following statement explains: "Work is already underway on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler's hallmark going forward," the company...

Words: 1291 - Pages: 6

Premium Essay

Gmc Bailout

...Ford: Ride the Mustang Christian D. Smithson Florida State College at Jacksonville Author Note Smitcd42@students.fscj.edu Abstract Ford has been one of the most popular car manufacturers in the world for over 100 years. In this report we will dive deep in to the roots of the Ford Motor company and analyze the overall health of the company over the past 15 years. We will study how the financial crisis of 2008 impacted Ford and how they managed to make it through. Ford pioneered many of the techniques other car manufacturers use to make cars today lending to their great success. If it wasn’t for Ford the automotive industry would probably be very different today. Ford: Ride the Mustang On June 16, 1903 the Ford Motor Company gets incorporated. With only twelve investors owning 1,000 shares and empire is born. At 9:30 in the morning on this day, June 16, 1903, Henry Ford and other prospective stockholders in the Ford Motor Company meet in Detroit to sign the official paperwork required to create a new corporation. Twelve stockholders were listed on the forms, which were signed, notarized and sent to the office of Michigan’s secretary of state. Henry Ford (255 shares), Alexander Y. Malcomson (255 shares), John S. Gray (105 shares), John W. Anderson (50 shares), Horace Rackham (50 shares), Horace E. Dodge (50 shares), John F. Dodge (50 shares), Chrles T. Bennett (50 shares), Vernon C. Fry (50 shares), Albert Strelow (50 shares)...

Words: 1285 - Pages: 6

Premium Essay

Bailing Out a General

...BAILING OUT A GENERAL [pic] The General Motors bailout was the most important bailout of the free ride that the government issued during these times of economic recession and turmoil. Allowing GM to fail was simply not an option. The reasoning is simple. GM has ties to corporation and employers that are far reaching. The sheer number of Americans that would lose their jobs in the event that GM closed its doors is staggering. One area that is not often thought of by the public is that of parts manufacturers. Companies like Delphi rely on contracts by the automotive industry. It is their bread and butter. They filed for bankruptcy and are receiving their own bailout to the tune of 6.2 billion dollars from The Pension Benefit Guaranty Corp. who took on the pension liabilities from the company. (The bankruptcy Case Number is 05-44481 (RDD) with the Jointly Administered United States Bankruptcy Court, Southern District of New York.) The impact is has also affected several other automotive parts suppliers have recently filed for bankruptcy-court protection Lear Corp., a major auto-seat maker, and American Axle and Manufactruing Holdings Inc. Other companies that rely on General Motors so heavily that a few weeks of no business would force them into bankruptcy. Aside from manufacturers, automotive dealers are tied directly to GM. Many have already been forced to close their doors as they have been handed “pink slips” by the car maker. More than one thousand of these...

Words: 1042 - Pages: 5

Premium Essay

Detroit's Perfect Storm Sets Sales Up for Bailout

...up for Bailout By Jeffrey Adik Copyright © November 2008 Jeffrey Adik Intraduce, LLC | All Rights Reserved The domestic automotive crisis embodies the perfect storm. The gale-forces our economy now faces are the result of a lengthy series of events that have effectively frozen consumer lending and generated an extraordinary global lack of trust across all investor categories. Attempts by the international market to hedge the crisis, through US currency devaluation, have only accelerated problems. The doubling of fuel prices had an immediate impact on the US consumer goods market, perhaps most visible in the automotive industry. This dramatically affected consumer buying habits, whose interest has shifted away from operationally expensive SUVs and resulted in substantially devalued new and used gas guzzlers. Automotive demand has now fallen to the lowest levels in 20 years, and had irreplaceable impact on the largest profit category of the industry. While we have seen a huge direct impact on the market’s perception of the auto industry’s viability, an even deeper crisis looms: Leased vehicles, a large proportion of which fall into the SUV & lower fuel-economy categories, are still on the industry books. These vehicles will be entering a redefined market with substantially lowered demand, and therefore require significant price discounts. Auto Inventory and Demand: Vehicle production has been cut, of course, yet the length of the global automotive supply chain...

Words: 2131 - Pages: 9

Premium Essay

Justification Report

...plummeted, and many corporations filed for bankruptcy. The auto industry suffered many hardships, enough that the government stepped in to offer bailout financing in order to keep operations and employment continuing. While the Ford Motor Company choose to restructure its own operations without accepting government assistance, General Motors Company had accepted the government funded bailout. This bailout encompassed numerous stipulations including changes in financial structure of operation and management. The end goal to stabilize the company, return from bankruptcy and back to providing affordable and dependable vehicles to its consumers. Reviewing past reports from various financial institutions, union employees and GMC’s annual reports I will discuss the change strategies since filing of bankruptcy and the government bailout. The second corporation I would like to research, for personal as well as scholastic purposes, is KIA Motors. During the time just prior to GMC’s financial crisis, KIA also had a change of management. This was working towards expansion, increase in profits, sales and producing award winning vehicles for the market. With the restructure of GMC and the difficulty of market finance, KIA had the opportunity to take market shares in America and further boost its standing as a solid competitor in the automotive market. KIA, being a new investment of ours, and GMC one of the alternatives to purchase, the vehicle was not the only factor regarding this...

Words: 403 - Pages: 2

Premium Essay

The Big Three

...The government has also stated that the unions must give concessions to the companies to enable them to survive and obtain additional funds from the government. What are those work rules and portions of the contract that make it difficult for the companies to make money? If you feel that the blame is found else where it is and what effect does it have on the bottom line. General Motors Ford and Chrysler were known for decades as the Big Three. The automotive industry crisis of 2008-2009 was a global financial crisis. President Barack Obama asserted unprecedented government control over the auto industry of General Motors Corporation and Chrysler LLC. His demand was fresh concession for long-term federal aid and raising the possibility of quick bankruptcy for either ailing auto giant. President Obama took the extraordinary step of announcing the government will back new car warranties issued by both GM and Chrysler. This concession would involve concessions from its union workers and bondholders. Two of the three automotive CEO’s vowed to their employers the following statements. Fritz Henderson, CEO for General Motors stated, “He would take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process.” Chrysler Chairman Bob Nardelli sought to assure customers, dealers, suppliers and employees that the automaker “will operate “business as usual” over the next 30 days” while working closely with the government and...

Words: 1081 - Pages: 5

Premium Essay

Nursing

...The automotive industry comprises 3% of gross global product. In many Western countries this number is higher (3.6% in the US)1 . Millions of workers worldwide are employed in auto manufacturing, auto parts, and supplies manufacturing as well as service and after sales care and other derivative industries. The auto industry produces more than 800 million cars globally. More than 250 million vehicles are produced in the United States. Despite the numbers, the level of interdependence caused by globalization is hard to quantify. Suppliers and clients are spread around the world in a web of relationships and obligations to one another. The economic crisis of the mid to late 2000’s did not have an equal impact across countries, companies, and employees. For example, in 2009, the dramatic impact of the recession followed by a restructuring in the US automotive industry was not fully mirrored in other mature markets in Europe or Japan. In the meantime, a very different trend was observed in major emerging economies with large domestic markets such as China, India, and Brazil, which experienced rising output as well as increased sales of motor vehicles. Many opportunities for mergers and acquisitions were present around the world. The crisis may have been a chance for Indian and Chinese auto manufacturers to expand their markets and become world players. Chinese auto manufacturers, for example,have since cut into the markets of US car manufacturers...

Words: 466 - Pages: 2

Premium Essay

The Auto Industry

...The Auto Industry For most of the twentieth century, the American automobile manufacturing industry was the most productive in the world. Over the past 20 years, however, the American industry has lost its comparative advantage. The state of the economy and the recession the country is experiencing is making it difficult for any industry to turn a sound profit. The auto industry is feeling the squeeze. The “Big Three” auto makers in the United States and Canada consist of, General Motors (GM), Ford and Chrysler. These companies are competing during these hard economic times and faced with competition from foreign manufactures as well. This paper will analyze the changes implemented in the auto industry, and the problems addressed by the leadership. It will identify new changes the company will implement for their organization to remain competitive within the industry and assess the effectiveness of the changes already implemented and the potential benefit of the new changes. The Big Three reigned as the largest in the world and two of these corporations are still the backbone of the top five. Ford has held the position of second-ranked automaker for the past 56 years, but the state of the economy has affected it powerful edge and responsible for their decent to third in North American sales, and passed by Toyota in 2007. That year, Toyota produced more vehicles than GM, however GM still outsold Toyota that year, holding fast to a consecutive 77 calendar years of...

Words: 2594 - Pages: 11