Economic Crisis: GM and Chrysler Bailout

In the post by Keval P. from February 21st, he discusses the problems that GM and Chrysler are facing within this difficult economy. He explains the possible merger that will occur between the two companies that has been discussed for some time now. He also explains that both GM and Chrysler feel like they are better off on their own, and will reduce costs by shutting down excess factories. Keval argues that the job loss from these two companies would be quite detrimental. Therefore, he feels like the 26 billion dollars that each of the companies have requested is reasonable and should be complied with by the US government. Keval feels that this is the best solution to protect these companies from further loss, and possible layoffs coming.

Keval's Blog

Although I do think that the jobs lost by the layoffs of GM and Chrysler would be quite unfortunate, it would not have a huge affect in the general scope of the current economy. If the statistics Keval is giving are accurate, then only 23,000 jobs would be lost from these two companies if the government doesn't keep stepping in to fund these companies. CNN reports that 2.6 million jobs have been lost in 2008, making unemployment rise to 7.2%. Therefore, although these additional layoffs would raise these numbers even higher, it is not a substantial amount compared to many other companies facing layoffs, especially at the cost of 26 billion per company to keep them funded.

CNN: Jobs Lost

Additionally, although the government could continue to help out with funding GM and Chrysler, it is just going to cause the government and the United States to go further into debt, and will cause more and more companies to request monetary assistance. I found an article that specifically deals with the GM bailout and ideas for how it should be approached. The article makes a good point, arguing that the government should not just hand over money to GM and Chrysler, but implement a plan to help out these companies while at the same time making sure they take the effort to restructure and that it doesn’t hurt tax payers. They suggest a “DIP (Debtor-in-Possession)” loan, which will cause less layoffs, let them restructure over 18-24 months, and minimize costs to tax payers since the DIP loan is provided financing directly, or through private financial institutions, and is well protected. I think this plan also seems like it will work well because it will make GM and Chrysler work to improve, and will force them to reorganize so that bad management is not rewarded and it will minimize moral hazard.

GM Bailout Information and Advice

I also feel like if the government simply keeps agreeing to bail out and fund all these companies, then it will just continue to cause more problems, as more companies start to request funding, and the government surges further into debt. I feel like the market is designed to work itself out, and those companies that have been managed well will find ways to survive without such massive assistance from the government. It is the fault of these companies if they didn’t have proper risk management strategies in place to protect themselves from uncertain outcomes. Had a company managed their assets properly and had efficient management, it would most likely be in a much better place in the economy, and would not require $26 billion dollars assistance from the government, like GM and Chrysler are requesting. I found an article focusing on this bailout effort, which did a great job of analyzing the current steps that the government is taking, as well as what it is likely to do in the future. Most likely, the government will continue to help out some, but not all companies, especially given the fact that we do not know how much longer the current crisis is going to last for. It is undoubtedly being felt globally, and it is something that taxpayers are eventually going to have to pay for.

US Bailout Information and Risk