Macroeconomics is the branch of economics that focuses on national, regional or global state of trade and commerce. While microeconomics is concerned with individual (personal) impacts of different changes in economic concepts, macroeconomics is concerned with concepts that affect the country as a whole in terms of production, interest rate, level of national production and international trade as affected by economic policies. The United States government has always taken concerted by developing policies and implementing diverse measures in providing a stable economic environment for commerce. This paper evaluates the Auto Industry Bailout of December 2008 and early 2009.
Background
The United States was one of the nations faced by the recent economic crisis that hit the world economy. During this economic crisis, the United States economy was faced with a huge credit crunch where bank, industries, mortgage firms and really all other industries could not access credit services. This caused a continuous increment in failure of businesses and the auto industry was in danger of the same closure. However to avert closure, the government agreed to a bailout plan for the car makers.
In the bailout plan, the car makers, that is General Motors (GM), Chrysler and Ford, requested the government for a $ 34 billion dollars bailout in a bid to avert bankruptcy. The government on the other hand clearly understood the implications of the three biggest car makers in the United States. In this, sense, the government understood that should the three companies go bankrupt, 3 million jobs would lost, about 4.5% percent of national GDP would be lost and the recession would deepen further.
In early 2009, the government, using the $700 billion economic rescue plan, offered to spend about $ 24.9 billion dollars on the Auto Industry. Additional bailout would be rolled out over the next three years to bring back the companies back to their feet. In the first bailout plan, GM and Chrysler were to receive about $ 17.4 dollars . The money was to be directed to two basic divisions of the businesses. First, the money was to provide operating cash for the car makers and secondly, the money was to provide money for loans to car buyers.
The car makers were criticized for the poor run that they had depicted over the past decade. While other automakers such as Honda and Toyota were investing in streamlined and energy efficient operations, the US automakers were not concerned with non-energy efficient methods and instead had several brands on sale. These non-energy efficient methods had significantly curtailed their competitiveness in the market and had lost much of their market share. Thus, while the government was in agreement that there was need for a bailout plan, different portions of the government insisted on restructuring these auto makers.
The first concession that the companies first agreed was for the CEOs to give up their lavish lifestyles and bonuses. First the CEOs agreed to a review of their bonuses and the sale of their company jets. Additionally, GM was to give up non-profitable divisions such as Saturn and Hummer. GM was also to reduce its number of brands worldwide to just 40. However, the most difficult decision that GM and the government had to make was to reduce staffing levels from 96,000 to 45,000 by 2012. On the financial side, GM was to repay it loans by 2012 and it additionally pledged $30 billion in stocks. Finally, health care benefits due to union retirees would be paid out in 2010 .
Similarly, Chrysler was to adjust its mode of doing of business. The first concession was to reduce it bonuses paid out to senior management and executives by 75%. Additionally, the company was to redirect resource to more energy efficient production methods as just as GM.
Why Automakers were important to the Country
Several critics have argued that the involvement of the government in the crises faced by the car makers was against the principles of open commerce. However, it would not have been prudent if government had left the car makers to go under. At the time of the crisis, the auto industry contributed about 4% to the national GDP. Kiley, (2011) explains that a decline of about 30% from the car makers had resulted to a 1% reduction in the economic output. Of more concern was the number of American jobs at stake. Car makers alone directly employed nearly 1 million employees. Other 1.9 million Americans were employed under dealership and other kinds of businesses associated with the care makers. Other scholars have also made the assertion that without the bailout, Detroit would have collapsed had GM and Chrysler gone under .
Conclusion
Today, the state of Michigan is a happy state. The federal Fiscal policy to bailout key economic institutions such as GM and Chrysler paid off. The auto industry seems to have made it back to growth and the state of Michigan is beginning to reduce its unemployment level that was the highest in the United States.
References
Amadeo, K. (2012, March 28). The Auto Industry Bailout. Retrieved May 11, 2012, from http://useconomy.about.com: http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm
Kiley, D. (2011, Jan 12). Bailout of Automakers Saved Michigan, Not Just GM and Chrysler. Retrieved May 11, 2012, from http://www.huffingtonpost.com: http://www.huffingtonpost.com/david-kiley/bailout-of-automakers-sav_b_1124708.html
