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Us Automotive Bailout Of 2008 Essay

1033 words - 5 pages

2008 Auto Bailout Cause and Effect Essay
It is argued that America invented the automotive industry when Henry Ford introduced the Model T to work lines in 1908. Since then the American auto industry has been known as the most successful in the world, with Ford, Chrysler, and General Motors leading the way in innovative technology and design. These “Big Three”, as they are called, hold ties in every civilized continent, and sell millions of cars every year. Yet at the turn of the 21st century, the fortune of these companies began to wane. Oil prices skyrocketed, and the model lineups for American cars were unable to keep up with the demand for fuel efficient vehicles. Eventually in 2008, ...view middle of the document...

This is an especially dangerous situation because if one major company goes under, it's dependent companies fail as well. Despite their preventative efforts, American auto companies continued to lose profits to the increasing number of foreign imports. The Big Three's market share decreased from 70% in 1998 to 53% in 2008. Chrysler, Ford and GM were billions under their needed profits, and sooner rather than later, they all would go under. Only outside intervention would save one of the most important industries contributing to America's economy.
As to be expected, companies began to downsize. Thousands of jobs were already being lost, with thousands more in danger. Then began the oil crisis. This caused gas prices to skyrocket. Even worse for American auto makers was that their lineups consisted mostly of gas thirsty trucks and Sport Utility Vehicles. No longer did the American public want large vehicles, so they turned to more gas efficient vehicles from the likes of Japan and Germany. While The Big Three played catch up with fuel efficiency technology, the likes of Toyota and Volkswagen saw their sales soar. In 2005, Toyota took GM's position as the largest automotive manufacturer in the world. Yet amidst this situation, the only company of The Big Three to take actual precautions against bankruptcy was Ford. “On Nov. 29, 2006, Ford Motor made a surprising pitch to the nation’s biggest banks” (Vlasic). By establishing a line of credit from America's largest banks in 2006, it was able to construct a cushion they would be able to fall on in the future. As for Chrysler and GM, financial bailout became the only ethical option. Before Barack Obama's inauguration, President Bush said "Allowing the auto companies to collapse is not a responsible course of action. The time to make hard decisions to become viable is now, or the only option will be bankruptcy” (Reichman). Bush saw the effect an industrial collapse of GM and Chrysler would have on the American economy. Not only would these...

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