Discussion: Should the US bail-out their car industry?

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marc_lemann	Should the US bail-out their car industry? Nov 17 2008, 4:04 PM EST In America, everyone believes that the American car companies like GM, Ford and Chrysler, which are nearly bankrupt, should be bailed-out by the government, to save their national pride. In this week’s "The Economist" magazine, they argue that bailing-out the car industry would be a grave mistake. Firstly, they argue that it would "open an invitation" to other companies to apply for aid to survive the recession. Banks qualify for this help because the economy depends on them; the car industry in the US failing would not be so disastrous. Secondly, they argue that the car industry is shifting from the saturated (full, at its peak) markets to the fast-growing emerging markets. This means, even if the car businesses fail in America, they would still have opportunities in other countries. In Brazil for example, Fiat has a plant where they produce 800,000 cars each year… that is a new car coming off the production line each 20 seconds! And they are not slowing the production; the plant continues operating with three shifts a day! So, should the US government bail-out GM, Ford and Chrysler, save many lost jobs, and one of their nation’s prides, or should they be influenced not to, by economists that predict it would not help the economy at all? Post reply 1 out of 4 found this valuable. Do you find this valuable? Do you? Keyword tags: bail-out cars Fiat Ford GM The Economist US car industry
athakurw athakurw	1. RE: Should the US bail-out their car industry? Nov 18 2008, 9:25 AM EST I think that this is a very interesting question because the answer is not obvious. On the one hand I think that these companies should receive financial aid because I don't think that they will be able to survive this crisis on their own. Adding to that many jobs are in risk and a lot of people could end up unemployed. On the other hand I think that the "Economist" is very right because if the government gives the automobile industry financial aid, it would force them to give support to many other companies that have also been affected by this crisis. I think that the government should give the automobile industry a limited amount of financial aid. But they also need to make it clear that they will not always be able to bail them out and that they need to make sure that it doesnt even get to this point. Post reply 2 out of 5 found this valuable. Do you find this valuable? Do you?
alexsvensson	2. RE: Should the US bail-out their car industry? Nov 18 2008, 9:34 AM EST Good point Aleya - The question that the US government really must ask is whether a bail-out plan would benefit the American people in the long run. Allowing the natural market forces to work, the government would simply leave GM and others to go bankrupt, which in turn would create a huge loss of jobs. On the other hand, if the bail-out is given to the companies, the bad management might still fail in the long run, and all the money given would be for nothing. Personally, I believe that it is better to let the companies fail if their management isn't able to keep them running. Although there initially will be a huge number of unemployed workers in the market, the market constantly opens up new opportunities. In the end, new managers will rise up, and if they are suitable for the job then they will be able to lead the company effectively. It may be good for there to be some government intervention during times of economic crises, but for the government to go as far as intervening in auto-industry may not always be the best option to take. Post reply 1 out of 2 found this valuable. Do you find this valuable? Do you?
gabrielmartin gabrielmartin	3. RE: Should the US bail-out their car industry? Nov 18 2008, 10:47 AM EST I completely agree with both of you. There are two ways of looking at this and there is no definite answer. You have to take into consideration the number of people who will be left unemployed. This could have catastrophic effects on the economy. On the other hand bailing out will make other failing companies believe that the government will do the same for them. This is certainly a controversial topic, as was the bail-out of the banks a couple of months ago. In my opinion the government should not provide the help because the market should, in theory, fix itself. Isn't the U.S a free market anyway? Such a huge government intervention would certainly go against its own ideas. Post reply 0 out of 1 found this valuable. Do you find this valuable? Do you?
RossHutchison	4. RE: Should the US bail-out their car industry? Nov 18 2008, 11:44 AM EST Well the only reason there are two ways of looking at it is because of our own personal uncertainty of the data and of our inert laziness as insofar as we will not go search for it. A bail of of the car industry is a risk. That so much is clear. It is risk on how long government interference will have to be instilled for. We don't know if the protectionism will lead to an increased efficiency from US car markets itself (it is, indeed, not an infant industry). I am not sure if it would lead to the notion amongst other industries that a government bailout is close at hand. As we can see that, along with the banks, the auto-market is regarded as a monolithic entity, unlike a lot of other markets. I also notice all of you guys above are such extreme capitalists. I demand a halt to this immediately! Post reply 2 out of 3 found this valuable. Do you find this valuable? Do you?
JonathanRanstrand	5. RE: Should the US bail-out their car industry? Nov 18 2008, 1:12 PM EST Alex makes a good point - the government is elected by the people to make decisions in the best interest of the people. However, I personally disagree, and think a bailout would be better for the people. Certainly, the car industry is not the only industry feeling the crunch as the economic crisis worsens, but it is among the worst hit. Gabriel said that the huge job loss would have a catastrophic effect on the economy, and I couldn't agree more with him. I found some statistics; one in ten jobs in the US is connected with the auto industry (which makes up more than 4% of GDP), and, were the car manufacturers to go under, 3 million jobs would be lost within the first year alone. Alex said that the market would constantly offer up new opportunities. While this is certainly true, I think the sheer number of new unemployed workers would be too much to handle. We would be facing an unemployment rate never seen before. I think the economy is, whether we like it or not, very dependent on the car manufacturers. Gabriel pointed out that bailing out companies would be against the free-market system, but maybe the government has no choice? The economic crisis we have now was caused by a .3% decline in GDP - imagine what would happen if it declined by 1, 2, maybe even 3 percent. I think the US government should bail out its car companies, because failing to do so would put the economy in an even worse downward spiral, and the record unemployment would mean consumers have less spending power as well, slowing down the economy as a whole. The question is, what could a bailout do? Could the government restructure the car companies? Alex made a good point, saying that the same failed management should not receive the money and run the companies into the ground again. Do you think that, with new management, lower debts, and perhaps more efficient cars, that the bailout could help the companies achieve, that the car companies could succeed? Post reply 1 out of 1 found this valuable. Do you find this valuable? Do you?
Jonnybur Jonnybur	6. RE: Should the US bail-out their car industry? Nov 18 2008, 1:39 PM EST I think they shouldnt, for a start these cars are not very enviormentaly friendly. The US industry has had along time to adapt and change to smaller and more eco cars, but they havn't its their choice. It's also their fault for giving in to working unions in the last 50 years, they had a little pressure to give old employes free health care, now they have millions of people on their healthcare system. Most of these people are retired or work for a diffrent company! They should not have given in. Their mistake should lead to their failure, they shouldnt be saved for bad desisions. The US part of Ford needs to brake away with the EU part, as the US part is the 1 destroying the company, while the EU keeps rolling in profits. If Ford wants to survive the need this split, so the American half doesnt take down the successful european half. Down with the American Economy up with the Brits :P Post reply 0 out of 1 found this valuable. Do you find this valuable? Do you?
DominicMcNamee DominicMcNamee	7. RE: Should the US bail-out their car industry? Nov 18 2008, 3:27 PM EST I believe that the auto industry should be bailed out. Under the condition that the labour unions contracts are all reworked or removed. The retired or fired workers are costing the companies far to much money and the pay that they are receiving while at work is well above what they earn. Saying that the car industry failing is worse then the banks failing is similar to saying that the earth being hit by a giant meteorite is worse than a nuclear war. Either way things aren't going to end well. If these companies fail there are the 3 million jobs lost in the US who work for those companies. But the problem is that there are many smaller companies who sell parts the big companies. If the big 3 were to fail then these companies could very well die off as well. Meaning even more jobs are lost. And it is not just in the US. The internatinal arms of GM and Ford may be in profit but if the US falls so do they. Why? Because they are dependent on each other. I'll use Holden (GM's Australian branch) because that is what I am most familiar with. as an example. They would be making large profits right now if GM America was not taking all of their money. Aside from being the second biggest brand in Australia they build the Pontiac G8, Vauxhall VXR8 and the basic platform for the Camaro and all other large RWD cars. But at the same time they are dependent on the rest of the network for small cars from Europe an Korea as well as engines and transmissions from the US. If they don't have engines they can't sell any more cars. It is a similar system for Ford as well, so simply splitting Ford Eu and US would just be a pointless exercise. Also, it takes several years between the initial concept of a car to the time it is in production. :Longer still for it to start making profit. End of part 1 Post reply 1 out of 1 found this valuable. Do you find this valuable? Do you?
DominicMcNamee DominicMcNamee	8. RE: Should the US bail-out their car industry? Nov 18 2008, 3:32 PM EST Part 2 Because it was only recent that the US had problems with petrol prices it has only been recently that they have thought about cars that are more fuel efficient. This happened years ago in Europe and Asia so thats why those companies already have cars that are good for the current climate in production. By 2010 the big 3 will all have cars out that work with the new market. Before this the US makes had no incentive to build more economical cars. I think that the Fiat plant in Brazil might still be producing cars because in general Fiats are cheaper than the average car from the big three, so therefore less elastic and also, I believe, Fiat has multiple plans around the world. That one might just be the cheapest to run. Although I'm not sure about that. Post reply Do you find this valuable?
Sabrina.W Sabrina.W	9. RE: Should the US bail-out their car industry? Nov 18 2008, 4:23 PM EST it is not to save the national pride, but rather to save the national unemployment levels from rising to too high a precentage. most of the car industry jobs are held in one specficregion int eh nited states. The car industry makes up nearly 3 million american jobs. with those 3 million americans out of work the economy will have less money going into different sectors for those consumers will be lost. the bail out isnt only to help the US citizens. as i learned today soem car industries such as GM have a completely interconnected system. So event hough there is GM china, GM US, GM australia, etc.., they are all interlinked. For example GM autralia as well as GM China recieve certain parts for engines fromt he factories in GM US. Consiquently in Gm America falls into perile, the other industries will be affected and thus the economies surrounding them. Post reply Do you find this valuable?
AlexHan	10. RE: Should the US bail-out their car industry? Nov 18 2008, 7:55 PM EST I think the bailout is a good idea, partially because my dad works for GM and i don't want the company to go down.... but also because I believe that an economic crisis is almost impossible to fix if the economy doesn't budge. In other words the flow of money is a fundamental needed to improve situations. But right now people are closing their wallets. Even I can feel it in my family... We're buying less. Now if the US car industry goes under, as Jonathan stated, their is a potential unemployment of 3000000... Which will almost freeze the economy. I can't say whether a bailout is going to be effective or not, but i definitely think it shoule be a starting point to eliminate the immediate "threat" Post reply Do you find this valuable?
robschenck416	11. RE: Should the US bail-out their car industry? Nov 19 2008, 12:32 PM EST "I think the bailout is a good idea, partially because my dad works for GM and i don't want the company to go down.... but also because I believe that an economic crisis is almost impossible to fix if the economy doesn't budge. In other words the flow of money is a fundamental needed to improve situations. But right now people are closing their wallets. Even I can feel it in my family... We're buying less. Now if the US car industry goes under, as Jonathan stated, their is a potential unemployment of 3000000... Which will almost freeze the economy. I can't say whether a bailout is going to be effective or not, but i definitely think it shoule be a starting point to eliminate the immediate "threat"" You make a good point, Alex. I think that the US Government is much less concerned about the survival of GM as a car company than it is about the thousands upon thousands of jobs that would be lost should GM go bankrupt. Keep in mind that not only people that directly employed by GM would loose their jobs, but also many of the supplier that supply GM with raw materials and other services. Without a question, a huge number of people would loose their jobs, which result in even a greater economic depression/slow down. ....and I just realized Sabrina essentially posted exactly what I posted without my realizing. Oops. What we also need to consider here is the alternative usages of that money. One of the next possible "bubbles" could be the "green bubble" in which there are huge investments in the development of new, green alternative energy sources, so that when the bubble bursts, and many people inevitably loose money, we retain an infrastructure. To those are are unfamiliar with the bubble concept- a "bubble" is essentially a new, heavily-invested upon industry. It continuously becomes a greater and bigger industry until a point where the bubble pops, and many people loose their money. These bubbles are usually very positive because they leave us with an infrastructure,such as the internet "bubble" has. This banking "bubble" that we're experiencing is of the same nature, except no infrastructure has been left behind, so there's no benefit to society. So essentially, we could be using that $25 billion dollars to help create a new industry, where a vast quantity of new jobs will become available, and we'll be left with an alternative energy infrastructure and many new innovations once that bubble pops. Post reply Do you find this valuable?
robschenck416	12. RE: Should the US bail-out their car industry? Nov 19 2008, 12:34 PM EST "You make a good point, Alex. I think that the US Government is much less concerned about the survival of GM as a car company than it is about the thousands upon thousands of jobs that would be lost should GM go bankrupt. Keep in mind that not only people that directly employed by GM would loose their jobs, but also many of the supplier that supply GM with raw materials and other services. Without a question, a huge number of people would loose their jobs, which result in even a greater economic depression/slow down. ....and I just realized Sabrina essentially posted exactly what I posted without my realizing. Oops. What we also need to consider here is the alternative usages of that money. One of the next possible "bubbles" could be the "green bubble" in which there are huge investments in the development of new, green alternative energy sources, so that when the bubble bursts, and many people inevitably loose money, we retain an infrastructure. To those are are unfamiliar with the bubble concept- a "bubble" is essentially a new, heavily-invested upon industry. It continuously becomes a greater and bigger industry until a point where the bubble pops, and many people loose their money. These bubbles are usually very positive because they leave us with an infrastructure,such as the internet "bubble" has. This banking "bubble" that we're experiencing is of the same nature, except no infrastructure has been left behind, so there's no benefit to society. So essentially, we could be using that $25 billion dollars to help create a new industry, where a vast quantity of new jobs will become available, and we'll be left with an alternative energy infrastructure and many new innovations once that bubble pops. " $25 billion doesn't seem like it's that much, as it represents only about 0.002% of America's GDP (although this is still huge). However, once you consider everything else that could be done using that amount of money, it's quite a loss. Perhaps saving GM is best for the immediate economic situation- but how will that turn out in the future? What if we had instead invested that amount of money in the creation of a new bubble, and a new industry? Post reply Do you find this valuable?
alexboedtker alexboedtker	13. RE: Should the US bail-out their car industry? Nov 19 2008, 3:20 PM EST There are tow ways of looking at this. One is that if the car undustry is bailed out people will not lose there jobs. The second is that the car industry should not be bailed out because it is a lose anyway. I personally agree with the second one. Of course I care that lots of people will lose their jobs but looked at from an economical point of view letting GM crash now so that when GM finally becomes bankrupt again the US would not have wasted money on them in the first place. Post reply Do you find this valuable?
Jonnybur Jonnybur	14. RE: Should the US bail-out their car industry? Nov 19 2008, 4:45 PM EST So how would they fund it? The US has a national debt of 10,664,310,811,003.00 Thats 10 Trillion, 664 Billion, 310 Million, 811 Thousand, 3 dollers So first i think US should sort out its money problems Post reply Do you find this valuable?
DominicMcNamee DominicMcNamee	15. RE: Should the US bail-out their car industry? Nov 19 2008, 5:22 PM EST " So how would they fund it? The US has a national debt of 10,664,310,811,003.00 Thats 10 Trillion, 664 Billion, 310 Million, 811 Thousand, 3 dollers So first i think US should sort out its money problems" But by no bailing out these companies they would put their economy in a worse situation that if they just payed of their debts. What do they do when 3 million + people all of a sudden pay less tax and go from buying their own stuff to government support? How will the government pay for that? Sure, they might find jobs eventually, but it would be a big hit to the treasury either way. Furthurmore, Buick is GM' most profitable brand right now. Why? Because they are having huge success in China right now. Every car they sell sends money to GM who then pay taxes to the US government. I'd assume that those cars are one of the few things that are made outside China and sold there. What happens when those cars aren't sold there anymore? Less money going from China to the US, meaning less money to fix American problems and pay back the debt. Post reply Do you find this valuable?
Jonnybur Jonnybur	16. RE: Should the US bail-out their car industry? Nov 20 2008, 5:18 AM EST The company is losing over a billion a week. 45 billion wont get them far, all it will do is keep the a dead company alive for a bit longer. So its not a matter of if they collapse its a matter of when, so the car compaines should break apart from their International counterparts such as Europe, which are having great successs. Atleast a part of the company will have a secure future, which will save many thousands of jobs. Anyway if the car companies dont sell many cars -- Leads to no profit (Loss) so will need to fire 10,000s of jobs. They will need less resources and factories, meaning suppliers will go down aswell. No matter what way you look at it -- Preety much all the staff have no future. All it will do is eat up goverment money week by week, making nothing, after 45 weeks, they will need new money as they will run out. Their sales are not going to increase much over the next year, especially as their cars are expensive, petrol guzzlers and unecofriendly. Honda and other foreign brands are going to take over the market. The future is bleek, use the 45 billion to employ the millions that will become unemployed to do somthing with the country. (Increase goverment spending even though they havnt got the money too lol) Post reply Do you find this valuable?
srainer	17. RE: Should the US bail-out their car industry? Nov 20 2008, 9:49 AM EST I agree with you marc, I was watching CNN the other day where they had a special report on this latest crisis. It is true that if these large American Car companies go bankrupt, unemployment will go up considerably. However, most of these people should be able to find similar jobs not too far away or in slightly different sectors. Also, by bailing out these three companies there is a wrong message being sent to the world. Basically it is saying that companies all around the world will be able to recieve aid from the government so that they will be able to continue. The reason why these three companies are in this particular situation is again because of the decision makers in the company. They decided to continue producing large SUV's and pick-up trucks which are not efficient. Other car companies have moved on from producing these "gas guzzlers" to producing fuel efficient vehicles. In the end, GM Ford and Chrysler brought this on to themselves and by helping these companies, it paves the future for other businesses to continue as they want and expect the governments to save them. Post reply Do you find this valuable?
welkerjason	18. RE: Should the US bail-out their car industry? Nov 20 2008, 12:22 PM EST " I'd assume that those cars are one of the few things that are made outside China and sold there. What happens when those cars aren't sold there anymore? Less money going from China to the US, meaning less money to fix American problems and pay back the debt." Dom, In fact, GM's cars for the Chinese market are made by GM Shanghai, a subsidiary of GM that is set to go independent in 2011. For now, GM is earning revenue from its sales of Buicks in China, but in two or three years, this source of revenue will run dry as GM Shanghai becomes its own company! Uh Oh! Post reply Do you find this valuable?
Ntrianta	19. RE: Should the US bail-out their car industry? Nov 20 2008, 1:08 PM EST I would think that the US government needs to bail out their car industry - not only because of the increase in unemployment that would arise from not doing so, but also because the car industries could learn a lesson from this bailout plan. It's easy to say that they weren't manufacturing efficiently in the past, and it might sound sardonic if congress acts like parents and tells them off, but it could give them a chance to get their act together and start working efficiently! 3 million jobs are at stake, it is too hard to let the companies fall by themselves. The firms should work in favour of creating a sunrise industry and build up over the next couple of years before they are set free into the global economy. If they can make plans to do this by the time GM Shanghai goes independent, the revenue may not run dry, and these jobs in America may be stable. Although some of the comments above talk about how it sends a bad message to other industries, and how these companies like GM and Chrysler brought it on themselves, the ends do not justify the means. The blue collar workers should not be punished because of the CEO's incompetence. It might not be the best economic answer, but a bailout plan is the best ethical answer. Post reply Do you find this valuable?

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