It appears that the troubling economic cloud looming over America will continue to impact our nation's economic climate, as yet another bailout package has been proposed for a sinking industry. More than a month ago, a $700 billion bailout plan was approved to resuscitate the ailing financial sector. Now, constituents of the automotive industry are begging for a injection of capital from the government to ensure their corporations survival. U.S. companies GM, Ford, and Chrysler, otherwise known as the Big 3 due to their majority stake in the domestic car market, are seeking a sum of $25 billion to help keep them from filing for bankruptcy. Numerous media outlets have picked up the story, including The San Francisco Chronicle, which features the article "Congress Debates Industry Bailout" on the front page of their website. The article offers an analysis of the gloomy situation the manufacturers are facing, citing several reasons for their downfall, including the credit crunch and longstanding poor managerial practices. The blogosphere is also teeming with debate over the issue, as individuals have been weighing the pros and cons of extending aid to the corporations considered over expanded and ill equipped to continue to viably operate. One blog featured on Newsweek's website, "In Defense of Detroit," concedes though the Big 3 have been "a disgrace," their vitality is nevertheless of integral importance to the American economy. Conversely, I found another Internet editorial with a differing view on the automotive site The Truth About Cars. In "Is the American Automobile Industry Worth Saving? Pt. 2," writer Robert Farago disputes that though GM, Ford and Chrysler do have a sizable presence in the U.S. auto market, they only constitute 50% of the market share and employment has steadily declined since 2000 (see graphic to the 
right). He furthermore asserts $25 billion is simply not enough to save the manufacturing giants from their impending fate. Instead, they should be left to fail to ensure their "rebirth" into more efficient and streamlined corporations, dexterously able to respond to market and consumer demands. After reading each of these two posts, I felt compelled to offer my own opinions on the subject. While my comments may be found under the comments section of each blog, I have provided them below for convenience."In Defense of Detroit"
Comment:
Mr. Gross,
Your article provides important insight as to why it is imperative domestic automakers receive a government backed cash infusion similar to the package granted to our ailing financial sector. It can be a tricky matter understanding the complexities of the many interrelated issues impacting our economy, and the plight of car manufacturers happens to be one of them. You bring up an interesting point that filing for Chapter 11 bankruptcy is an expensive and extensively drawn out process for companies like GM, Ford, and Chrysler. In rationalizing this assertion, you write, "people would be reluctant to purchase expensive, long-lived assets from a bankrupt entity." Though the Big Three’s products appear to match these asset types, why do you hold this to be true? Is it because no matter what the market conditions, consumers demand a constant supply? It seems that in a significant downturn like the one we are facing, it would be a shrewd option to declare Chapter 11 and sell cars at a significantly discounted amount. Though consumers may be presently reticent to purchase large expenditures, if price tags were reduced to an incredibly attractive figure, vehicles could be sold at a high enough volume to possibly lift these manufacturers out of bankruptcy. Your discussion of the regional implications resulting from this sector’s potential collapse warrants reconsideration by those currently against the proposed bailout package. The forecasted figure of three million jobs lost nationwide is enormous, especially given the realities of the economic recession. It is significant that a large number of businesses in our country, large and small, have some affiliation with the U.S. automobile industry. According to a recently published article in the San Francisco Chronicle, Detroit lawmakers claim that one in ten jobs are tied to domestic vehicle manufacturing. Though these figures may be somewhat inflated, the inextricable nature of this sector with other currently fragile parts of the American economy grants legitimacy for a plan to keep it from failing. Though I agree with your arguments supporting the existence of U.S. carmakers, I worry that the proposed amount may be too little, too late. $25 billion may not be enough to save the sinking industry from its fate. Hopefully though, the amount will be enough to keep these corporations from bankruptcy, yet will be insufficient to keep them from operating in their current state. The Big Three need to downsize and streamline operations in order to realign with the marketplace and become attractive again to American consumers.
"Is the American Automobile Industry Worth Saving? Pt. 2"
Comment:
Mr. Farago,
I found your arguments against the issuance of a bailout package for U.S. car manufacturers to be extremely informative. It is important to examine this type of governmental expenditure given the current economic downturn. You bring up several great points in defense of your assertions. I agree with you that companies composing the Big Three (Ford, GM, and Chrysler) are bloated corporations in need of an overhaul. They need a shake up that will restructure their management and restore their prominence as premier American brands, delivering products with amenable features customers want. However, I believe it should be a concern of our nation’s citizens that foreign automobile makers have such a stranglehold on the domestic market. I do not share your sentiment that this is an unavoidable reality. American cars can indeed make a comeback through careful revision of their manufacturers and their subsequent realignment with the market. You advocate that the industry should be left to fail, yet what do you think about this sector’s synergy with other areas in the economy? According to the Center for Automotive Research, as many as 2.5 million workers could become unemployed nationwide if any one of these corporations go bankrupt. That is a significant amount of jobs lost, especially considering the recession is expected to raise the unemployment rate considerably by the year’s end. It is true that the Big Three have been consistently unable to competently respond to foreign competition, and they have indeed been mismanaged for years. Yet they appear to exist as a cornerstone of the American economy and job market. Therefore, wouldn’t it be a better plan to keep these corporations afloat, but in doing so demand they concede to requirements they have been avoiding for years? Stringent mandates could be attached to the bailout, successfully realizing the implementation of guidelines such as higher fuel economy standards. These types of policies would not only help to address environmental concerns, but they would help automobile manufacturers to put cars on the road better matching the evolving demands by consumers for more innovative products. I agree with you that “the new car ‘bubble’ has burst,” but more pragmatic policy approaches could be introduced to address the U.S. carmakers than to simply let them fail.
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