Pro: Should the Federal Government Have Bailed out the American Automobile Industry?

Pro: Should the federal government have bailed out the American Automobile industry?

Introduction

A. In 2008 the U.S. economy went into a severe recession hurting, many industries and business, especially the U.S. Automobile industry

1. Due to the failing of the financial institutions credit markets tighten up affecting sales of all financed purchases like automobiles

2. Due to the same reasons these companies stop having access to capital, which made it difficult for any type of restructuring in their industry

3. Due to the severe recession and rising gas prices consumers reduce spending, which affected the sales of SUV's and trucks

B. These factors made the auto industry suffer with a decline in sales and suffer huge losses

I. Reasons the Auto industry bailout was needed

A. The Business model of the big three in the 1950s and 60s was base on the Stakeholders model. These companies were extremely profitable and their shared the wealth with their employees

1. During this time period they incorporated the defined benefit plans into their pensions and health care benefits as well

2. Furthermore life expectancies were shorter than what we are experiencing now, which made these pension plans more affordable

B. With the expansion of globalization new automakers entered the market replacing the defined benefit plan with a 401k

1. Defined benefit plans are heavy liability for U.S. automakers also known as legacy costs

2. Legacy cost for GM and Chrysler represent a much higher cost per car whereas foreign manufactures like Toyota incur a much lower cost

a) Up to $1600 per vehicle

C. Automakers like GM and Chrysler rely heavily on the sales of the SUV's and trucks that carry a higher profit margin than economy cars

1. The oil crisis in 2008 created a big problem for these companies because consumers stop buying gas-guzzlers

2. The decline in sales for these large vehicles reduced GM plants productivity

II. Benefits of bailing out the U.S. auto industry

A. Keeps the US economy from a further collapse

1. 1998 labor strike caused a 1% decline in gdp growth for the second quarter

B. Help consumer confidence from falling

1. Collapse of Iconic US industry would be crippling to the nations collective psyche

III. Consequences of allowing the U.S. automakers to fail

A. Numerous Americans are stakeholders of these companies

1. These companies employ a significant number of Americans that would lose their jobs raising the already high unemployment rate and damaging the economy even more

2. The rust belt states depend heavily on Automobile