Barack Obama has asked President Bush to support aid to General Motors; Bush may withhold his endorsement until a controversial trade deal is passed. What is at stake?
General Motors reported November 7th that it has spent $6.9 billion, taken $3.5 billion in credit, and paid $1.2 billion in bankruptcy payments to parts supplier Delphi (Freed, 2008).
Ongoing Problems for General Motors
GM’s share prices have fallen to their price in 1946, down 23 percent to $3.36, on fears that the company would run out of cash (Calmes, 2008).
GM’s 2.5 billion net loss led to a downgrade by Deutsche Bank, putting a one-year price target of zero on the company’s stock (Bensinger, 2008).
GM’s sales have declined 20% this year, and the company has cut production and benefits; nearly 6,000 workers in North America will be laid off (Bensinger, 2008).
Many feel the automaker is in jeopardy of bankruptcy before the end of the year. If the GM, Ford and Chrysler collapse, it would mean the loss of three million American jobs (Calmes, 2008).
Should the US Government Bail out GM?
Commentators such as Dan Freed have noted that a GM bankruptcy would not lead to the collapse of automobile travel in the world, as the failure of AIG would have led to drastically reduced consumer credit (Freed, 2008). Therefore, it is not as necessary to bail out GM as it was to bail out AIG.
As the Economist.com points out, to rescue a company which has been crippled by its own inefficiency and failure to innovate at a pace necessary to remain competitive is not an effective way to stimulate the economy; to keep a large company on life support only allows its inefficiency to prevent full recovery for the financial system as a whole (Economist.com, 2008).
Obama’s Perspective
Obama’s intervention in the auto industry would extend beyond the life support cautioned by the Economist. He would require GM to produce cars which are more energy efficient and reduce emissions (Calmes, 2008). He sees the crisis as an opportunity for a green revolution of the auto industry.
Bush’s Trade Deal
President Bush may withhold his support of a GM bailout in hopes that Democrats will pass his trade deal with Columbia.
Obama has long opposed the Columbia deal because Columbia has a record of human rights abuses against union workers as well as poor environmental standards. Democrats seem unlikely to waver in their opposition (Calmes, 2008).
The Standoff
If Bush will not support a bailout of GM, the company may fail before Obama takes office.
Sources:
Bensinger, K. (2008, November 11). General Motors shares driven down on forecast they could soon be worthless. Los Angeles Times.
Calmes, J. (2008, ). Obama Asks Bush to Provide Help for Automakers. New York Times.
The copyright of the article Should President Obama Save General Motors? in Global Economy is owned by Jeffrey Donaldson. Permission to republish Should President Obama Save General Motors? in print or online must be granted by the author in writing.
As a taxpayer and someone who voted for Obama I do NOT support the bailout
of GM. This is not only taxpayer involvement in a specific industry but a
specific company. It has little bearing on the vitality of American and if
the government does intervene, where does this kind of activity end?
GM has not produced a car anyone wants for decades which is why it
is dying. Let it go. Another auto company will come in and buy it and by
that act alone will change management and union policies immediately that
refuse to make a product people want. Maybe it will be Toyota, maybe a
venture capitalist, but this is private industry and let private industry
stay private.
Nov 17, 2008 10:53 AM
Guest :
As a taxpayer and someone who voted for Obama I DO support the bailout
(also known as a loan) to the big three automakers. Let's remember that
the automobile business is HEAVILY dependent on free flowing credit both
for internal cash flow as well as for the retail portion of the business.
If customers can't borrow money they can't buy cars. The big three have
been devastated by this credit crunch, and they are absolutely integral to
this economy. If the big three were to go bankrupt over three million jobs
would be directly lost, and that doesn't begin to count all the other
countless businesses that would be hurt when automaker employees and auto
dealer employees and auto supplier employees don't have any money to
spend.
Finally, after Sept 11th, remember it was GM that stepped
up to the plate and offered (for the first time) 0% APR for 60 months for
people to buy cars. They, almost singlehandedly, got this economy moving
again, and gave people a sense of optimism.
Nov 18, 2008 9:18 PM
Guest :
As someone who supported Obama from the very beginning, I am very
discouraged that he is supporting this bailout. When does it end? Can every
company now get bailed out, regardless of their past practices and lousy
product? GM has been so incompetently run the past few years, even harmful
given what it did to electric cars, I don't see how this could end up going
well. Even if the company had strict guidelines that they must produce
green, their management is so poor, at first flop it would be a
I-told-you-so from the GOP and hinder what could be better policy to
support a company that can produce a much needed product, manage it well,
and do it so that all other companies will follow. Obama being swayed by
the out-dated unions is almost as bad as all the other politicians being
swayed by the lobbyists. Will someone please tell me the difference so
convincing that is supports this plan? If we want real change, someone
has to step up who can see the larger picture- we are asked to sacrifice
for the greater good, well then we all suck it up, because you know that
most of us have to. Obama, please show that you are that person.
File bankruptcy and get new management. Detroit was over years ago- it
deserves something better.
Dec 1, 2008 1:30 PM
Guest :
As a taxpayer who voted for Obama, PLEASE help GM. Everyone says, do not
help the company based on the choices of the CEO's, do not give them the
help. Does anyone think that the big shots at this company will go without
anything if GM is not helped. No, it is the everyday hard working american
that will suffer, loose their homes, and will go without. Obama should keep
his word and help them!!! Wife of a UAW autoworker!
