1-Minute Overview Should the Big Three car manufacturers be bailed out by the US government?
About This Topic
Citing the falling economy and consequent downturn in sales, the Chief Executive Officers (CEOs) for GM, Ford, and Chrysler, otherwise known as the Big Three or the Detroit Three, appeared before Congress in Nov. and Dec. 2008 seeking a financial bailout. The initial request for $25 billion was raised to $34 billion once the Big Three determined further costs based on restructuring plans submitted to Congress. Whether the members of Congress should approve the plan and bail out the Big Three has become a hotly debated topic that we decided to make our first ever mini-site.
PRO Bailout of Big Three
CON Bailout of Big Three
PRO: Many proponents believe that a bailout is necessary because the cost of keeping the Big Three operable is cheaper than the supposed hundreds of billions it would cost the economy if they failed. They argue that the extraordinary economic downturn has affected the automakers with problems not of their own doing. If the Big Three are pushed into Chapter 11 bankruptcy, supporters argue, they run the risk of permanent damage to their business in the form of lost customer confidence, investor flight, and possible Chapter 7 liquidation.
Furthermore, proponents contend that, because the Big Three employ a quarter million workers and have thousands of dealers and suppliers that rely on their business, not giving the automakers a bailout would further harm an already failing economy and move the country into a deeper recession. Supporters believe that providing a bridge loan, or short-term loan, would help the Big Three remain viable through tough economic times and could provide a good investment.
CON: Many opponents believe that a bailout would reward the automakers for decades of bad business policies. Critics also argue that the Big Three would benefit from going through a Chapter 11 bankruptcy restructuring process to help shed excessive costs from labor agreements with the United Auto Workers (UAW).
These critics contend that the Big Three's problems are self-inflicted since the automakers have not made forward-looking investments, such as smaller, more fuel-efficient cars, in the contemporary auto market. Furthermore, a bailout for the automakers is seen by detractors as being too costly in an ever-shrinking economy. They argue that, while the Wall Street bailout was meant to save the national economy, a Big Three bailout would benefit only Detroit. Bailout opponents see it as government propping up troubled companies who will likely return for more money.