The climax of the 2008-2009 financial crises, the largest ever since the Great Depression of the 1930s, witnessed the near collapse of multibillion-dollar industries in the United States. Concerns over the economic impact of the possible collapse of these industries compelled the then administration and Members of Congress to seek legislative options to salvage them. Consequently, two of the industry biggest players in the auto industries, General Motors and Chrysler, were offered financial support by the government and in return, shareholders and other stakeholders had to make necessary sacrifices in order to fundamentally restructure their businesses and commit to the tough decision of returning the companies to financial viability. In fact, close to 700 companies, which also included companies in the banking sector, were bailed out by the government and the total amount of taxpayers’ money that is supposed to be spent on the bailouts is about $12.5 trillion (New York Times, 2011). So far, the U.S Treasury has spent at least $2.5 trillion (2011). In exchange, the government became the owner of significant shares in these companies.
However, this move by the U.S government has over the past attracted heated debates among ordinary citizens and politicians. It is an issue that has so far left many wondering whether by doing so, the Bush’s government and the subsequent Obama’s administration opened the Pandora’s Box. Proponents argue that the government’s decision to save the auto and the financial sector was more than just about dishing out hard-earned taxpayers’ billions to these companies, but a better way of standing behind the millions of workers, businesses, and communities. In addition, they appear to not understand the rea...
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...ilout a troubled industry.
Furthermore, from the many research papers as well as opinions generated from the 2008 bailout, one objection that clearly stands out is the diversion of TARP funds to help the auto industry, especially considering that these funds were specifically passed by Congress in 2008 to stabilize the troubled financial sector in a successful attempt to avert an economic meltdown. Notably, lawmakers purposefully excluded the inclusion of the auto industry from the program. So, did the Obama’s administration disregard the law by committing at least $50 billion to rescuing GM and Chrysler? To some, such a move was costly to the taxpayer bearing in mind that there was a loss of at least $10 billion. But then again, the lessons learnt from this dark chapter in America’s economic history point out to the real economic costs of government interventions.
This paper will focus on the future of the U.S. Automobile industry as the United States recovers from the worst recession we have experienced in the past 75 years. I will provide information on the following topics pertaining to the U.S. automobile industry:
In 2009, the Obama Administration bailed out the General Motors and Chrysler automobile companies. Having begun their decent into bankruptcy in 2008, losing thousands of jobs, sales plummeting forty percent, with a high threat of liquidation, General Motors and Chrysler finally reached government-assisted chapter 11 bankruptcy in 2009. Obama allocated eighty five billion dollars in TARP funds to the auto industry, close to fifty billion dollars of it going to General Motors. The allocated funds were successful in keeping two of the Big Three auto companies afloat, keeping taxes from sky rocketing and saving millions of jobs.
Money Well Spent by Michael Grabell is a book about Michael Grabell posing one crucial question about The American Recovery and Reinvestment Act, which was the largest economic recovery plan in history. The $825 billion package known as “the stimulus” was five times more expensive than the Works Progress Administration (WPA). Moreover, the recovery plan cost well over a trillion dollars. In addition, one question Michael Grabell posed to himself: was the taxpayers’ money well spent? Therefore, to get his answers he followed the progression of the stimulus projects across the country, scrutinizing how reality and spin often collided.
In the latter part of 2008, the United States’ economy was rapidly plummeting - the stock market crashed, the housing bubble burst and gas prices skyrocketed. The majority of U.S. based firms faced the reality that they would not be able to survive during such desperate economic times. The U.S. automobile industry, in particular, began to buckle under the depressed economy. The government stepped in proposing a multi-billion dollar bailout to stimulate the economy and restore economic balance. The possibility of this unprecedented government intervention was condemned by many economists. If the government helped the ailing automotive industry, this industry would have to tighten their expenditures and plan for the future to prove to critics of the bailout that they would use the government funding to add value to the economy once again.
The Sub-Prime Mortgage Crisis of 2008 has been the largest financial crisis to take place since the end of the Great Depression. It was the actions of individuals and companies that caused this crisis. For although it could have been adverted, too much money was being made by too many people in place of authority to think deeply on the situation. As such, by the time actions were taken to attempt to rectify the situation, it was already too late. Trillions of dollar of tax payers’ money was spent trying to repair the situation that was caused by the breakdown of ethics and accountability in the private sector. And despite the government’s actions to attempt to contain the crisis, hundreds of thousands lives were negatively affected before, during, and after this crisis.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
“It is your problem no less than it is mine. Together we cannot fail,” President Franklin Delano Roosevelt said in the closing of his weekly “fireside chat” on March 12, 1933, while discussing, with the hundreds of thousands of bewildered United States citizens, the painful topic of the Great Depression. When Roosevelt took office in March of 1933, just five months after the fateful stock market crash that caused the depression, America was in full-blown economic turmoil. Every day after the crash, more and more people were laid off from their already low paying jobs, making it impossible for them to support their families, and even themselves. While characterizing the aftermath of the depression in his First Inaugural Address, FDR reveals that “the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.” FDR had an indisputable determination to solve this nationwide dilemma, evident in his solution, named The New Deal. However, it has been constantly debated whether the New Deal was a success or a failure. This question is now brought up, once again.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
The question is: What caused Detroit, the Rust Belt’s most valuable player, to crumble? The answer to this question is contested on both sides of the political spectrum. It’s easy to point fingers and make the col...
In 1952, Charles E. Wilson resigned as President of GM to become Secretary of Defense. At the confirmation he was asked if he could make a decision in the interest of the nation if it were adverse to GM. "Yes sir, I could," Wilson said. "I cannot conceive of one, because for years I thought what was good for our country was good for General Motors and vice versa. The difference does not exist."1 Yet his GM is accused of undermining the American transportation infrastructure and destroying a viable, superior streetcar network in order to sell more cars. Regardless of the validity of this conspiracy theory, the fact remains that America destroyed vast mass transit networks to make way for private and public automotive transportation. The question of whether the transfer from iron to asphalt was advisable also asks what makes a good transportation network. Both transportation systems are valid, but unique features of American cities and culture made automobiles the better choice. Conspiracies of the powerful in the USA pale compared to the tyranny of the majority. Regardless of economic or social considerations, public demand made the key decisions in building the American transportation network.
Mercedes-Benz was looking to build their first auto manufacturing plant in the United States in 1993. The company was intent on locating in North Carolina because of their experience with their large truck division plant that was located in that state. The company’s officials did not intend on visiting Alabama and was not considering the state when Governor Jim Folsom, Jr. and other officials signaled their intent to bid on the new plant. This “give-away” was viewed negatively in a state that has a poor education system and under-funded pension system and caused Folsom to lose re-election in the next election to Fob James. The “corporate welfare” was a major issue and the expectations from the project have never been realized. In fact, William Gunther, an economist at the University of Alabama stated that the job calculations are wishful thinking and “we are suffering from winner’s curse” (Myerson, 1996).
The 2008 crash in the U.S. Housing market associated with subprime mortgage and Merry Lynch losses, Bank of America accepted a $20 billion government bailout with the intention of stabilizing the financial marjets (Gupta & Herman, 2012). Band of America later repaid that amount with interests. In 2010, according to Forbes, Bank of America was the world’s third largest company after JP Morgan Chase and General Electric. In 201, however, Bank of America began conducting personnel reductions of an estimated 36,000 people, contributing to intended savings of $5 billion per year by 2014 (Bank of America Ending 30K more jobs, 2011). As for ownership, Bank of America is a publicly traded company listed under BAC in the New York Stock Exchange (NYSE)
Fueled by the 2008 recession, the automotive industry suffered a crisis that hurt the United States’ national economy.
Economic conditions are known to change rapidly, either favorably or unfavorably, especially when the political environment is unstable. 2009 was a particularly hard period for the U.S. Automotive Industry with General Motors and Chlysler facing bankruptcy and Ford Motors being the only survivor among “The Big Three”. Between 2006 and 2009, the world witnessed the Iraq War. This ...
The development of the American Auto Industry took place over many, many years, starting with Mr. Henry Ford building the first car in 1896. The industry has evolved, to what it is today and represents approximately 10% of the country’s Gross Domestic Product (GDP). According to the Bureau of Labour and Statistics, ‘the automotive industry includes industries associated with the production, wholesaling, retailing & maintenance of motor vehicles’. These industries are industries that have a tremendous impact on the U.S economy and can be directly impacted by changes in U.S. production and sales of motor vehicles.