In my previous entry, “US Auto Manufacturers And The Dodo Bird – Birds Of A Feather?”, I examined the current economic situation of the Big Three automakers in Detroit in regards to what led them into this predicament and what parallels can be drawn between them and the history of the Dodo bird. In this piece, I want to discuss the idea of bailing out these three failing automakers and why it’s not a good idea. As we’ll see, this all boils down to the basic economic concept of supply and demand.
At its most basic, the fundamental problem facing GM, Ford and Chrysler is that not enough consumers are buying their cars as people are understandably opting to buy more reliable and better built foreign cars, some with warranty coverages that were almost inconceivable a decade ago. The continual decline in car sales, among other factors, has resulted in all three manufacturers ending up with massive debts and with little capital to cover even basic operating costs. This is why GM, Ford, and Chrysler are now pleading with the Canadian and American governments for financial aid as without the injection of new capital, they’ll have no choice but to file for bankruptcy. And yet, what will the granting of public funds really accomplish in terms of Click to continue reading the rest of this entry
