US Auto Bailout – Pros and Cons – Addressing Bankruptcy in 2009
US Auto Bailout – Pros and Cons – Addressing Bankruptcy in 2009
As Congress comes closer to finalizing a bailout for the American auto industry, one can’t help but wonder what the ups and downs of such a bailout include. While I can’t possibly detail every aspect of this bailout, especially considering that its long-term effects cannot possibly be known, the goal here is to simply point out the obvious pros and cons and open a general discussion.
The US auto industry – in regards to this bailout this is represented by GM, Chrysler, and Ford – has historically been protected by the US government. The reason being that it is one of the primary manufacturing industries in the United States and without protection, it may collapse; this collapse may then ripple across the entire manufacturing sector of the US economy thereby reducing its competitiveness worldwide. As such, a bailout by the government does not seem too out of place. But let us consider a few pros and cons for contemplation’s sake.
- Pro #1: Being one of the largest manufacturing industries in the US, the collapse of these auto giants would not only damage the US economic competitiveness worldwide, increase unemployment, and weaken the US Dollar, but it may also destroy entire communities throughout the “foundry” region of the US (roughly Michigan through Pennsylvania) by eliminating its economic foundation. The most obvious Pro from this auto bailout is the protection of the people living in this region.
- Con #1: By bailing out massive manufacturing organizations which could have prevented their own demise with effective planning, as well as pushing for the necessary research and development needed to produce more fuel efficient vehicles, the US government is potentially rewarding bad business practice. By doing so the US government runs the risk of prolonging the delay of the necessary restructuring of this faulty, inefficient industry.
- Pro #2: By supporting an industry whose survival carries a heavy impact throughout the manufacturing sector of the world’s most influential economy, the US is ensuring that it maintains a competitive economic edge. During this time of financial crisis the last thing any country needs is the collapse of one of its largest industries. No matter how corrupt these auto giants may be at their highest levels, an industry collapse of this magnitude will cripple any country experiencing a recession as deep and as wide as this one.
- Con #2: On the flip-side of the point above, times of financial crisis are typically the period in which industries are tested. If such an industry does face a serious risk of collapsing, maybe there is a reason for it. If this bailout comes out of hand as simply an infusion of liquidity then the US government is running a high risk of encouraging a business model in one of its major industries which has proven to be ineffective during times of economic recession. Without a stipulation which requires a restructuring of these industries, the bailout will only be adding to the problem, not fixing it.
The current debate rages over whether such a controlled bankruptcy will be beneficial in the long-run for the automotive and manufacturing industries, or whether it will simply push them past the point of no return. While we contemplate the pros and cons of this move try to understand that this issue is by far more complex than simply bailing out a failing industry, as we will see.
- Pro #1: As President Obama has said, the systematic bankruptcy of these auto giants will allow for the restructuring necessary to make a more fuel-efficient automobiles and help ease the shift to greener forms of energy in order to limit our dependence on foreign countries for our energy supply. The pros from this move are obvious. If this restructuring is successful, Obama may be correct and the U.S. may be capable of shifting towards more fuel efficiency and producing fewer greenhouse gases.
- Con #1: While glorified in theory, and only in the long-run, the above point basically ignores the fact that the U.S. automotive and manufacturing sectors will suffer near-death experiences in the short-run. Especially since that is basically what bankruptcy means. It is a type of death certificate. As these industries are restructured over time, and while jobs are theoretically being created, those sections of employees who specialize in skills which are being cut-back will find themselves on the street, so to speak. The day-dreaming about “what will be” leaves out the whole part of economic anarchy in the short-term. This simply cannot be ignored.
- Pro #2: In light of the first article, one pro of allowing bankruptcy would be to finally deliver a type of punishment to an industry which has been slow in developing more efficient technologies due to self-deception and a sense of invincibility while the rest of the world was blowing past into the field of green energy vehicles. This may be the sanction that was long overdue to large, bloated, inefficient companies which are oh-so-symbolic of this recent financial crisis and recession. Chalk this up as a victory for the American taxpayer (that is, of course, if you call bailing out a company that later declares bankruptcy a victory).
- Con #2: While this bankruptcy scheme appears to be a long-term savior of an inefficient industry, the truth is that its success is highly dependent on outside factors. The success of green energy cars depends on there being a demand for them. Demand for these vehicles increases when gas prices sky-rocket. However, during this recession Crude Oil has fallen off its peak of $147 a barrel last July to hover around $50 a barrel today. Without a dramatic increase to gas prices like we saw last year, the demand for greener vehicles will simply not exist. Second, American cultural mentality places a value on the status achieved by owning a large and powerful vehicle. If hybrid or other green energy vehicles do not possess the same attached status, they will not be very successful.
Recent Updates
If you have filed bankruptcy or are considering doing so, you may be concerned with the possible effects. Renting an apartment after bankruptcy is possible; you just need to be prepared.
Whether you’re just considering bankruptcy or have just been through one, you are likely to ask yourself this question. The good news is yes, there [...]
During the initial consultation your specific situation will be reviewed and discussed, the process of bankruptcy will be explained, options available in Bankruptcy will be analyzed by our experienced attorneys, fees and costs will be discussed and questions will be answered.
Prior to filing bankruptcy: A debtor is required to take a credit counseling class by [...]
Discussion
What do you think? Leave a comment. Alternatively, write a post on your own weblog; this website accepts trackbacks [trackback url].
Leave a Reply