The Automotive Bailout Essay

3839 Words Jan 28th, 2015 16 Pages
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
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The direction of the economy and long-term performance of the major American automakers will be the only real measuring stick that can be used to determine if President George W. Bush and President Barack Obama acted correctly in their actions to come to the aid of the automakers that were “too big to fail”.
The automotive bailout followed a long-line of tax-payer funded Government financial bailouts. In 2007 and 2008, the federal government spent $700 billion to Wall Street firms whose risky mortgages and loans had not held up. This included $85 billion to the insurance firm International Group, $29 billion to Bear Stearns and JP Morgan, and $25 billion to financial mortgage firms Freddie Mac and Fannie Mae (Kaufman, 2013). In November 2008, the three major auto-industry companies, General Motors, Chrysler, and Ford, flew their executives to Washington D.C. and asked for $50 billion bailout to avoid bankruptcy (Amadeo, 2013).
Leading up to the crisis There are many theories as to what caused U.S. automakers General Motors, Chrysler, and to a lesser extent, Ford, to fall into economic peril. An examination of these theories is an integral part of an examination into the eventual automaker bailout. Many have claimed that the United Auto Workers (UAW) Union was the primary reason for the “Big Three” automakers to ask for bankruptcy protection. According to this line of thought, the

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