Glass auto industry bailout paper - BrentGlass,EurekaCollege :'s A devastating financial crisis struck the United States and most of the world in 2008

Glass auto industry bailout paper -...

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Brent Glass, Eureka College A Federally Funded Restructuring: The Automobile Industry's Journey from Worldwide Acclaim to BankruptcyA devastating financial crisis struck the United States - and most of the world - in 2008. The automobile industry, which accounts for a large percentage of the nation’s economic output, was especially affected by the turmoil that followed. The economic crisis, coupled with internal managerial issues and the ever-increasing presence of foreign automobiles in the United States, led to a financial crisis within the domestic automakers. The “Big Three” automakers that include Chrysler, Ford, and General Motors were in financial trouble and faced filing bankruptcy,possibly threatening the jobs and therefore the livelihoods of hundreds of thousands of people. In an effort to prevent the complete collapse of the automobile industry Congress moved to enactthe Auto Industry Financing and Restructuring Act, which passed the House of Representatives in December of 2008 but failed to pass the Senate. However, the Emergency Economic Stabilization Act of 2008 (EESA) was passed in an effort to protect good investments that financial institutions still held and help purchase poor assets to relieve the financial burden. The Troubled Asset Relief Program (TARP), established in EESA, included funds for the two car companies that required them: Chrysler and General Motors. Ford took many steps prior to the economic crisis of 2008 – such as securing loans against its blue oval logo – that enabled the company to remain financially viable and avoid the necessity of government funding. The headsof these American automakers appeared before Congress together on two separate occasions, pleading for cash in order to keep their business going. This eventually led to the failed attempt to pass the Auto Industry Financing and Restructuring Act and the decision of then-President Bush to use TARP funds to fund the two failing automakers until they could provide a viability plan and receive more financial support from the government. This ultimately led to the “bailingout” of the two companies by President Obama’s administration. This essay will briefly describethe reason for passing EESA and the path that it carved for supplying the American car companies with taxpayer money. It will also briefly explore the decline of the auto industry in America and the eventual visit of the CEO s of the Big Three to Congress. The actual process of the bailout will be analyzed – drawing substantially from Steven Rattner’s first-hand account in Overhaul – as well as the effects of the government intervention. Lastly, the paper will attempt to determine whether the infusion of government funds actually worked and determine whether –if GM or Chrysler went bankrupt again – it would be wise of the government to supply the companies with money once again.
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