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auto manufactuers in financial trouble?The big three manufactuers in the U.S. are...

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mijeejo | Student, College Freshman | (Level 2) Honors

Posted July 31, 2010 at 4:40 PM via web

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auto manufactuers in financial trouble?

The big three manufactuers in the U.S. are currently in financial trouble. General Motors and Chrysle are filing for bankruptcy. Chrysler is being take over by Fiat. GM is giving ownership to the government in return for a $20 million bailout.

1 Why is the U.S. auto industry in financial trouble, compared to foreign competition?

 

2. What will be the economic consequences of a government bailout of the auto industry?

 

3. Should the government assist the auto industry?

 

4. Should the industry receive bailout if it is an obligopoly? What if the industry was a monopoly or monopolistically competitive? How does it affect your opinion?

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scarletpimpernel | High School Teacher | (Level 1) Educator Emeritus

Posted August 2, 2010 at 2:07 PM (Answer #2)

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This question seems a little dated, since the auto bailout in the States occurred over a year ago, but in regards to American auto companies being in financial trouble versus foreign ones, it's not necessarily true that foreign auto companies (like Toyota) are not in trouble.  Most people would claim that American auto makers have to deal with unions that force them to pay rather large salaries for skilled labor and provide overly generous pensions and health benefits to workers.  While a company should not abuse his labor force, the unions have taken benefits too far when it comes to the auto industry.

I'm from Flint, Michigan, which used to be a major hub for GM.  When I was growing up, there was a Buick plant that employed 20,000 people, and that was just one of the GM plants in our city.  However, when people started to retire at fairly young ages (mid-50s and early 60s), they began collecting pensions and enjoying the best health and dental benefits in the nation.  As more and more auto workers retired and car sales fell, the company couldn't simply afford to pay for all the "promises" they had negotiated with the unions.  Instead of being willing to negotiate so that more plants could stay open and employ more people, the unions essentially forced the financial downfall of some of the auto makers. One other cause for the problems of American auto companies is their refusal to eliminate lines and streamline their production.  GM has done this, but only after the government got involved. Ford did this several years ago, and they did not need or ask for government assistance.

I don't think that the government should have stepped in in this case.  By stepping in, they forced GM and Chrysler to close down thousands of dealerships across the nation, costing many non-union Americans their jobs.  The closures were not necessarily based on the success of a dealership--I've seen this in my hometown especially, where some of the busiest and most productive dealerships were closed by GM.

Additionally, Ford was in similar financial trouble several years ago, fixed the problems without government help, and they're doing better today than GM and Chrysler.

Finally, if America's economy is truly a free enterprise, then we must allow businesses to fail.  It's not the end of the world, and sometimes it provides motivation for a company to self-correct.  A good example of this is Charter Communications.  They declared bankruptcy a little over a year ago, but restructured themselves, and now they have better customer service than they did before and more satisfied customers.

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