The Auto Bailout

With the current declining U.S. economy many economic issues have become uncertain. This is why it is more important than ever to start looking at our past for some answers about the economy. Since the government’s approval of a financial bailout for the banking industry, many other companies have started to ask for some of the money. The question is whether additional money is really going to help the company or just prolong a collapse of those companies. Some might even question if this bailout has done anything to help the current economy. Certainly there have been no major changes since the money has entered the market. On December 1st there was even an official announcement that the American economy is in a recession. One thing we should pay attention to is where this money could potentially be going. One industry that is asking for this money is the auto industry.
Recently the three top American auto companies went to Congress to ask for some of the money from the bailout. It is hard to answer the question as to whether or not these companies should be bailed out. It is really a catch twenty-two in deciding what to do with these auto makers. If you bail the companies out, their jobs will be saved. However, since these companies are not making any money it could just allow them to stay in business a couple more years before going out of business and wasting taxpayers’ money. If the companies are not bailed out thousands of jobs will be lost (not only in each company, but in other industries who produce parts that go into the cars) which could hurt the economy even more. These are the hard questions that history can help us evaluate. To find information on this you have to look to Europe. In the late 70’s British auto maker Leyland started to struggle financially. The company started doing so poorly that it asked the British government for financial help. They tried to help by bailing them out with about 11 billion dollars. After a few more years of poor performance the company went out of business.
There has been one success story with a government bailout, and that is the company of Renault. This is a French company that in the 1980’s received a bailout of roughly 4 billion euros. The scenario is different from the American car industries however. The French government owned shares in the company before they started doing poorly. If the government already owns Renault, they have the power to persuade consumers to buy that car. Renault is also a local car company in the sense that it does not try to compete on an international level like the American automakers. These differences show that there is success in government bailouts, but perhaps not for companies like GM and Ford.
Looking back on these two car companies is a good way to get some background on an industry being bailed out. There will be no definitive conclusion, but it is good to get an idea of what outcomes might occur by looking at actual scenarios in the past. It is important to note that the American auto industry is more like the British company Leyland than it is like Renault. With this information in mind, the next step is to consider the long term consequences of giving the car companies taxpayers’ money. There are other options these companies could pursue that would not require the governments’ money. One thing is certain, and that is the American auto industry is going to have to change drastically if they want to stay in business.

http://www.nytimes.com/2008/11/18/business/economy/18car.html?_r=1&scp=8&sq=car%20bailouts&st=cse