Auto Bailout
Should Obama Bail Out the Auto Industry?
Context and Situations
By November 2008, Chrysler’s sales had shrunk 25%. GM posted losses of $18 billion, and Ford lost $11.5 billion. Despite Ford’s elimination of 1/3 of its workforce, GM’s elimination of 30,000 jobs, and Chrysler’s cutting of 13,000 employees, the Big Three were on the brink of bankruptcy. All three testified before both houses of congress asking for loans to avoid default. The Big Three stated their demise would trigger 3 million layoffs within a year, plunging the economy further into recession.
The purpose of the loans was to provide operating cash for GM and Chrysler, and to keep making auto loans available for car buyers. Ford Credit planned to use funds from the Term Asset-Backed Securities Loan Facility (TALF), a government program for auto, student and other consumer loans.
The auto bailout proposal from the Big 3 auto companies totaled $34 billion in government loans. In return, the companies promised to fast-track development of energy-efficient vehicles, and consolidate operations. GM and Ford agreed to streamline the number of brands they produced. They also won agreements from the UAW union to delay contributions to a health trust fund for retirees and reduce payments to laid-off workers. The three CEO 's agreed to work for $1 a year and sell their corporate jets.
The Obama administration had to make the call: Bail the automakers out? Or let them go bankrupt without the bailout?
Decisions Framework and Critical Assumptions
During the height of financial crises in 2008, the Capitol Hill’s main objective was to pull the economy out of a deep recession. At the time of the bailout, the auto industry contributed 3.6%, or $500 billion, to total U.S. GDP output. A 30% decline in auto sales translated directly into a 1% decrease in economic output. The auto industry also employed 850,000 workers in manufacturing, and 1.8 million workers in auto dealerships. Therefore, a
Context and Situations
By November 2008, Chrysler’s sales had shrunk 25%. GM posted losses of $18 billion, and Ford lost $11.5 billion. Despite Ford’s elimination of 1/3 of its workforce, GM’s elimination of 30,000 jobs, and Chrysler’s cutting of 13,000 employees, the Big Three were on the brink of bankruptcy. All three testified before both houses of congress asking for loans to avoid default. The Big Three stated their demise would trigger 3 million layoffs within a year, plunging the economy further into recession.
The purpose of the loans was to provide operating cash for GM and Chrysler, and to keep making auto loans available for car buyers. Ford Credit planned to use funds from the Term Asset-Backed Securities Loan Facility (TALF), a government program for auto, student and other consumer loans.
The auto bailout proposal from the Big 3 auto companies totaled $34 billion in government loans. In return, the companies promised to fast-track development of energy-efficient vehicles, and consolidate operations. GM and Ford agreed to streamline the number of brands they produced. They also won agreements from the UAW union to delay contributions to a health trust fund for retirees and reduce payments to laid-off workers. The three CEO 's agreed to work for $1 a year and sell their corporate jets.
The Obama administration had to make the call: Bail the automakers out? Or let them go bankrupt without the bailout?
Decisions Framework and Critical Assumptions
During the height of financial crises in 2008, the Capitol Hill’s main objective was to pull the economy out of a deep recession. At the time of the bailout, the auto industry contributed 3.6%, or $500 billion, to total U.S. GDP output. A 30% decline in auto sales translated directly into a 1% decrease in economic output. The auto industry also employed 850,000 workers in manufacturing, and 1.8 million workers in auto dealerships. Therefore, a