Without a doubt, the year 2009 in American history will be recalled as a time of great economic upheaval, as well as a time when as never before, the American government stepped up to save the economy through assistance to major industries, chief among them being the United States automotive industry. With this in mind, the focus of this research will be: what has happened to the U.S. auto industry in the past six months, how has it affected the economy and whether or not the government plays a role in bailing them out.
An Overview of the US Auto Industry of Late
To begin, it is important to understand not only what has happened in the US auto industry in the last six months, but the US economy as well, for as subsequent sections of this research will show, the two are definitely linked in many important ways.
For the US auto industry, it can certainly be said that, in looking at the last six months, it has truly been the worst of times. As of March, 2009, what have typically been known as the “big 3” auto makers in the US: Ford, General Motors and Chrysler, all were faced with millions upon millions of unsold vehicles languishing on the lots of their retail dealers, massive defaults on the part of customers who financed their vehicles, and no end in sight to the bad news for what was once the envy of the entire industrialized world (White). So bad in fact have things become for the US auto industry that Chrysler has in fact filed for bankruptcy, and General Motors and Ford have sought government protection from creditors (Tankersley). It should also be noted, however, that for Chrysler, government protection is nothing strange, as the auto maker has likewise received government bailout in decades past (Manila Bulletin).
Following the path of its auto industry, the US economy has likewise seen its better days as evidenced by data which shows that as of April 2009, the gross domestic product of the nation had seen its worst dip in over 50 years (Willis). The point to be realized is that the US auto industry and economy, as will soon be seen, are closely related.
How the US Auto Industry has Affected the Entire Economy
The impending implosion of the US auto industry is of course devastating in and of itself, but in many ways has also affected the entire economy of the nation. Understanding this relationship requires a better understanding of the significance of the auto industry as part of the entire national economy. Sources indicate that throughout the economic history of the US in the years after World War II, the auto industry has consistently ranked as one of the top, if not the top, manufacturing industry in the US. A 2003 study commissioned by the US Congress and spearheaded by Congressman Carl Levin stated the following:
The auto industry is responsible for more than 100,000 jobs in each of several industries, including dealerships, fabricated metals, auto parts, auto repair and maintenance, road construction, tire dealerships, fueling stations, and car washes.
The auto industry is responsible for more than 50,000 jobs in each of several other related industries, including plastics and rubber, trucking, computers and electronics, petroleum and machinery and equipment.
The auto industry is responsible for more than 25,000 jobs in each of several more related industries, including advertising, textiles, aluminum and recycling.
The auto industry also provides thousands more jobs each in the rail industry, the steel industry, the painting and coating industry, the glass industry, the copper and brass industry and the iron industry.
The auto industry generates $243 billion annually in private sector compensation.
The automobile industry provides among the highest levels of wages and benefits in the private sector, averaging $69,500 in 2001.
The auto industry boasts a value added of $292,000 per worker, 143 percent higher than the overall value-added ratio for U.S. manufacturing ($120,000).
When seeing just how much the auto industry contributes to the American economy, it is easy to see how it also holds the potential to significantly, even permanently damage that economy. Because of this, the US government, over the last six months, has played an increasingly significant role in bailing out the industry as a whole, which will now be discussed in more detail.
Does the Government Play a Role in Bailing out the US Auto Industry?
In the present day, without a doubt, the US government plays a role in bailing out the auto industry in many significant ways. On the front lines of the problem, which is that consumers are simply not buying new vehicles at the present time, President Barack Obama has outlined a plan to stimulate new car sales by proposing to offer government backing for new vehicle warranties which takes away the fear on the part of the buyer that the manufacturer will not be able to stand behind their product if the manufacturer goes bankrupt, offering tax incentives for Americans to purchase new vehicles made in the US, and subsidizing purchase prices to make American cars less expensive for buyers (Muskal).
On the other side of the proverbial coin, the US government is essentially rescuing the automakers that are drowning in red ink in a variety of ways, such as taking responsibility for billions of dollars in debt on the part of the automakers, essentially giving the government ownership of those companies (Behreandt). It should be noted, however, that in exchange for this assistance, the government has imposed on the automakers standards for fuel efficiency and “green” vehicles, which has led to a great deal of controversy in regard to how far the government should go in bailing out the auto industry, or it if should be involved in such matters at all (Muskal). This question will now be answered.
Should the Government Play a Role in Bailing out the US Auto Industry?
Putting aside politics, environmental issues and the like, a compelling argument can be reinforced for the government’s playing of a role in bailing out the US auto industry. First, as was seen in the earlier portions of this research, the automotive industry, in and of itself, is a major employer of American workers, providing tens of thousands of well paying, respectable jobs; in turn, these jobs generate hundreds of millions of dollars in tax revenue. Thus, the US auto industry will pay dividends to the government many times over when it is bailed out, as the government will be assured a stream of future income in the form of tax monies, not to mention that lower unemployment rates reduces the burden on governmental resources such as welfare, Medicaid, and the like (Gup). What is seen in this example is not the government taking over the automotive industry in some sort of unethical power grab, but rather that the government is looking out for the interests of the entire American population in saving the automotive industry itself.
Another reason why the government should play a role in bailing out the auto industry is both for the sake of the countless peripheral industries which derive income from the automotive industry. These industries range from the banking industry to the steel industry, marketing firms to oil refineries, and beyond. The point to be realized is that such a diverse industry as the automotive industry would take far too many other businesses, and lives away with it if it were simply allowed to fail without government assistance (Gup).
This research has taken an economic snapshot of the recent past in order to reach an important conclusion- the US automotive industry must be saved for the sake of the entire national economy, the well-being of the government, and the literal survival of millions of hard-working Americans, for if the automotive industry is allowed to fail, tragically enough, others will surely follow, and the in the balance of it all lies the future of the greatest nation on earth, which is far too high of a price to be paid.
American Icon Driven to Last Chance Saloon; AUTOMOTIVE.” The Birmingham Post (England) 15 May 2007: 20.
Behreandt, Dennis. “Losing Our Way: Once the Heart and Soul of America, the Middle Class Has Recently Endured Mounting Job Losses and Declining Standards of Living.” The New American 25 June 2007: 8+.
“Business Options; America on the Road to Recession?” Manila Bulletin 7 Feb. 2008: NA.
“Chrysler Sale Could Herald Auto Industry Restructuring.” Manila Bulletin 16 May 2007: NA.
Gup, Benton E., ed. Too Big to Fail : Policies and Practices in Government Bailouts /. Westport, CT: Praeger, 2003.
Levin, Carl. “Automakers Drive US Economy on Many Levels.” US Senate Publishing Office 24 September 2003: NA.
Muskal, Michael. “A Primer on Obama’s Auto Industry Plan.” Los Angeles Times 31 March 2009: NA.
Tankersley, Jim. “No Easy Road for US Auto Industry.” Los Angeles Times 9 April 2009: NA.
White, Joseph. “Losing Our Way”. Wall Street Journal 1 May 2009: NA.
Willis, Bob. “U.S. Economy: GDP Shrinks in Worst Slump in 50 Years.” Retrieved May 20, 2009 from the World Wide Web: http://www.bloomberg.com/apps/news?pid=20601068&sid=a6WLEZ20yerY.