Automobile Industry - Bailouts, Going Green and Hyundai
Auto Industry 2009
An important issue regarding business ethics is the theory of moral hazard which occurs when a person or business behaves differently when insulated from a certain risk. Moral hazard theory states that when a person or business is insured against the consequences of a particular event, this increases incentive for the insured to behave in a way that will cause the event (Glassman, 2009). The current government bailout of General Motors and Chrysler provides a vivid demonstration of moral hazard. In order to prevent bankruptcy, the Canadian government bought stakes in both companies totalling 14 billion dollars (Watson, 2009). Chrysler is now owned by Fiat while GM has appointed several Canadian government officials as its new owners (Morgan, 2009). This bailout plan can be perceived by these companies, as well as other large corporations, as a “safety net” which will protect them from economic failure, causing them to increase their risky and irresponsible behaviour.
Economists argue that the auto-makers have to be accountable for their own situation. Unlike rival automobile companies, GM and Chrysler had poor contingency plans during the economic downturn and therefore should suffer the consequences (Watson, 2009). During a recession, companies are advised to shift their marketing strategies to emphasize quality, durability and value in order to maintain sales (Lamb et al., 2008). GM and Chrysler automobiles, while less costly, are not usually associated with high quality. The companies were not able to alter these public perceptions during the recession which greatly contributed to their economic crises. Other automobile companies, including Ford which is traditionally grouped with GM and Chrysler and considered lower quality, managed to restructure during the recession and avoid bankruptcy. However, after receiving their rescue packages, GM and Chrysler now have a smaller debt load than Ford, which is economically and morally unjust (Morgan,
An important issue regarding business ethics is the theory of moral hazard which occurs when a person or business behaves differently when insulated from a certain risk. Moral hazard theory states that when a person or business is insured against the consequences of a particular event, this increases incentive for the insured to behave in a way that will cause the event (Glassman, 2009). The current government bailout of General Motors and Chrysler provides a vivid demonstration of moral hazard. In order to prevent bankruptcy, the Canadian government bought stakes in both companies totalling 14 billion dollars (Watson, 2009). Chrysler is now owned by Fiat while GM has appointed several Canadian government officials as its new owners (Morgan, 2009). This bailout plan can be perceived by these companies, as well as other large corporations, as a “safety net” which will protect them from economic failure, causing them to increase their risky and irresponsible behaviour.
Economists argue that the auto-makers have to be accountable for their own situation. Unlike rival automobile companies, GM and Chrysler had poor contingency plans during the economic downturn and therefore should suffer the consequences (Watson, 2009). During a recession, companies are advised to shift their marketing strategies to emphasize quality, durability and value in order to maintain sales (Lamb et al., 2008). GM and Chrysler automobiles, while less costly, are not usually associated with high quality. The companies were not able to alter these public perceptions during the recession which greatly contributed to their economic crises. Other automobile companies, including Ford which is traditionally grouped with GM and Chrysler and considered lower quality, managed to restructure during the recession and avoid bankruptcy. However, after receiving their rescue packages, GM and Chrysler now have a smaller debt load than Ford, which is economically and morally unjust (Morgan,
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