BUS233-Micro and Macro Economics
Answer:
Bailout to the Big Three:
The American government have bailed out the auto industry that lasted from January 2009 to December 2013. The big three automobile makers have approached the congress and have warned that the bailed out companies regarding the bankruptcy and loss of one million loss of employment (Bernanke et al., 2015). The treasury department of US invested around $80.7 billion from the $700 billion authorized by the Emergency Economic Stabilization Act. It has recouped around $10.2 billion to lent money and bring back the ownership of the stock.
Over the years the loss of the big three forms the major problem. Since the recent survey reveals that their long standing decade share of 70% have declined to 47%. Another decline came when in the recent years there was the record increase in the prices of gas that deeply cut down the demand for picking up the SUVs. For several years SUV and the pickups have introduced strong sales with higher profit margins.
Among the big three Detriot faced the trouble in adjusting with the sudden fall in the demand. Industry critiques has argued that the automobile makers would better be able to go through the bankruptcy to shed down the costs and contracts of labour which they cannot afford, instead of struggling together with the assistance of federal dollars. Researchers have stated that failure of either GM or Ford may result a loss $100 billion to the economy as several suppliers, dealers and retail have base in the cities and are reliant on them (Cowen & Tabarrok, 2015). At least 10 jobs in the automobile industry are dependent on the assembly of auto mobiles. Hence, without financing, liquidation, sale of the assets and shutting down may remain as the only option as this move would result in shock in economy and may cost millions of jobs.
Reference:
Bernanke, B., Antonovics, K., & Frank, R. (2015). Principles of macroeconomics. McGraw-Hill Higher Education.
Cowen, T., & Tabarrok, A. (2015). Modern principles of economics. Palgrave Macmillan.
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