Introduction
The current global financial crisis has affected major parts of the economy from agriculture sector to the industrial sector. One industry that has been caught in this crisis is the Auto industry. It is amazing that that this crisis has not only caught up with America car makers but most of the world leading car makers. In American, leading car maker General motors has been operating on a loss. Others include Ford and Chrysler. In other parts of the world, car makers have been experiencing difficulty running their business. They include Mazda, Nissan and Mitsubishi. South Africa and Italy car makers have also been faced by the same problem. All these are attributed to the current financial crunch.
Main body
Increased bankruptcies in these companies have paralyzed most parts of their operations. This bankruptcy is as a result of other factors such as bankruptcy in the major lending banks. This created shortage of credits in form of loans that are used mainly to finance the Auto companies. The bank bankruptcy also affected individuals’ ability to borrow hence constraining their purchasing power. This implied that consumers had to cut on their expenses on goods that seem luxurious to them and this included modern cars. As a result, these Automobile companies had to incur losses due to unsold stock. This has increased tendency by companies to cut on their costs thereby retrenching workers. As a result, unemployment rate has increased. However, it should be noted that. This therefore contributed to their bankruptcy. To further cushion on these negative effects, there has been increased call for the government to come in and restore the financial stability of these companies especially in the United States. They include General Motors and Chrysler who have so been told to forward their proposal for bailout before the end of March 2009. Others include Mazda and Mitsubishi who have already applied for loans in their ministry of health and land. These loans are to be used to pay wages to employees to avoid lay off (Tucker)
With up to a million jobs at stake, the bailout plan for the auto industry is the way to go. Moreover, given the fragile nature of most economies in the world especially United States the bailout plan would help in stabilizing the economy. Wall Street was bailed out, why not the Automobile industry? Yet it also contributes a big percentage in the gross national product. The proposed production of more fuel friendly cars by Automobiles is a good indication of their innovative skills. However, the present bankruptcy hinders their move to put this proposal into action. Therefore, the bailout would contribute a lot in ensuring the implementation of this proposal and make them more viable. In the long run, the country energy sector would benefit from this proposal.
To some extent, the bailout plan is unnecessary. First, the crisis in Automobiles can be attributed to their mismanagement and not the current financial meltdown. Take for example the structure of these industries. Take the example of airlines and steelmakers; they have been able to sail through without being bankrupt. This is because of their competitive nature and efficiency. In addition, the free market economy agitated by Keynes would be dysfunctional and would lose its meaning in case of these continued bailouts by government. The government would have therefore resorted to socialism where government has control over the functioning the economy.
This is a short term solution of the current problems. More firms from other industries would also come out to ask for bailout in the near future. This would set a very bad precedent on the country’s economic functioning. Therefore, a permanent solution need to be addressed otherwise taxes would keep on increasing to finance more bailouts (Sanger)
Conclusion
In conclusion, it would be better to embrace the bailout plan. This is because of the current global financial crisis that has constrained consumption and production in general. Therefore, the bailout should act as a short term measure to control further recession and economic calamities in the country. Once the economy has stabilized, things should return back to normal and allow the economy to function freely. Any attempt to hold on to the bailout plan in the long run should be resisted with all due force.
References
Isidore, Chris. (2008) Auto bailout: Showdown. CNN Money.com.
Sanger, David. E. (2008). Bush Aids Detroit, but Hard Choices Wait for Obama. New York Times. Web.
Tucker, Sean (2009). Auto Bailout. US. News. Web.