Effects of the 2008–2010 automotive industry crisis on the United States
Following dramatic drops in automobile sales throughout 2008, two of the "Big Three" U.S. automakers – General Motors (GM), and Chrysler – requested emergency loans in order to address impending cash shortages.
With the intent to prevent massive job losses and destabilizing damage to the entire manufacturing sector, the U.S. and Canadian governments provided unprecedented financial bailout ($85 billion) support to allow the companies to restructure and jettison legacy debt via Chapter 11 bankruptcy.
Some note that the crisis occurred mainly as a result of business of the Big Three U.S. automakers which had limited access to offshore production as opposed to their Asian counterparts.
The support given to General Motors and Chrysler by the Obama administration was initially unpopular, with a March 2009 CNN/Opinion Research Corporation poll finding that only 37% of Americans approved of the actions.
)[20] Andrew Sorkin of The New York Times indicated that GM and Chrysler pay $10–20 more per hour than transplants; this was vigorously disputed by David Cole of the Center for Automotive Research.
"[28] Jared Bernstein, the chief economist of Vice President Joe Biden, noted in an April 7, 2009 interview that most of the concessions that the UAW made in the 2007 contract applied only to new hires.
[35] One GM bondholder described this as the socialist state intervention typical of Hugo Chavez's Venezuela, saying "This is the kind of stuff you'd expect from a banana republic.
Economists used 2007–2008 data to build estimates of what a shutdown would cost in summer 2008, in order to set benchmarks to help policy makers understand the impact of bankruptcies.
[43] In a November 19, 2008 CNBC article, Jordan Kimmel, a fund manager at Magnet Investing in Randolph, New Jersey, said that if the Big Three automakers were liquidated or completely shut down, foreign companies such as Honda and Toyota would open up new manufacturing plants in the U.S., and there would be no long term loss in employment or damage to the economy.
Once the too-big-to-fail perception was dispelled, with large conglomerates no longer considered the safest investments, bankers and investors began financing new opportunities in areas which had been starved of capital (small firms, entrepreneurs and consumers), while Korea's GDP actually rose after Daewoo's unwinding.
Schuman also noted a similar analogy with Japan during its Lost Decade of the 1990s, where banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing that they were too big to fail.
[47] Wharton finance professor Jeremy Siegel, author of the book The Future for Investors, asserted that Chapter 11 bankruptcy would allow Detroit to reorganize but not cause the massive job losses feared by some.
"[48] Opponents of a bailout believe that the automakers' problems could be more efficiently resolved by a bankruptcy court with legal power to dissolve existing contracts, shedding costs, and debts that it can no longer afford.
"[The] most constructive role the government can play at this point is to provide a short-term infusion of capital with strict repayment rules that will essentially require the auto makers to sell off their assets to other, successful companies."
The authors argued that the Big Three make automobiles that not enough Americans want to buy, which cannot be solved by a bankruptcy restructuring focused initially on cost-side considerations like wages and benefits.
It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians.
"[55] In a December 17, 2008 opinion column, economist Thomas Sowell said that there was no bailout for the horse and buggy industry 100 years ago when it was replaced by the automobile, and that the overall standard of living is higher when winners and losers are determined by customers instead of by politicians.
[60] At the November 19, 2008, hearing, Gary Ackerman (D-NY) said, "Maybe you can tell us what you're actually going to do to sell cars people want", and Michael Capuano (D-MA) said, "My fear is you're going to take this money and continue the same stupid decisions you've made for 25 years.
[citation needed] A November 20, 2008 Detroit Free Press article said that the UAW was considering ending its jobs bank program as a condition for a federal bailout.
[65] On December 2, 2008, the Big Three submitted revised plans to Congress which apparently included more drastic measures such as the lowering of executive pay, reducing the number of brands and refinancing company debt.
'"[68] On December 9, 2008, negotiators revealed the terms of an emerging deal between the White House and Congress under which a short-term $15 billion bailout for the Big Three would be overseen by a federal "car czar" or trustee.
[73] A statement from GM expressed its deep disappointment with the failure and said, "We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.
"[74][75] On December 19, George W. Bush announced that he had approved the bailout plan, which would give loans of $17.4 billion to U.S. automakers GM and Chrysler, stating that under present economic conditions, "allowing the U.S. auto industry to collapse is not a responsible course of action.
[80] Under the Obama administration, the idea of a car czar was considered and ultimately abandoned in favor of joint Lawrence Summers/Timothy Geithner oversight of a possible second round of lending to the auto companies.
[citation needed] In his joint address to Congress in 2009, Obama stated: We will invest fifteen billion dollars in technologies like ... more efficient cars and trucks built right here in America.
[94] A November 19 CNN article noted that "Gary Ackerman, D-NY ... and several other representatives suggested that it was difficult to give money to the automakers when the CEOs had all flown to Washington on corporate jets.
Ecology-minded Americans had little sympathy, given the big automakers' reputation for maximizing profits at the environment's expense, and their role in the dismantling of mass-transport systems and privately owned railways between the 1920s and 1960s.
Facing a saturated car market in the U.S. in the early 1920s, GM engaged in a controversial policy along with road-builders that triggered the massive shift from the mass transportation of the previous century to the "one-person-one-car" trip of today.
[101] A December 22, 2008, article from Bloomberg reported that General Motors and Ford "had their debt cut further below investment status by Standard & Poor's and Moody's Investors Service.
On June 2, GM Motors announced the sale of the Hummer brand of off-road vehicles to Sichuan Tengzhong Heavy Industrial Machinery Company Ltd,[108][109][110] a deal that fell through after failing to obtain Chinese regulatory approvals.
