Ten years after two auto manufacturers, GM and Chrysler, received an $80 billion government bailout, economists and business analysts find the subject still ripe for debating economic crises and the free market. After top government officials approved bailouts to top financial firms, considering them all but inevitable, there was hesitation about an automotive bailout. Despite the risk to 3 million jobs to consider, the auto manufacturers had plummeting sales, which brings up the question of whether to let the free market dictate which companies fail.
For Wharton management professor John Paul MacDuffie, the idea of letting GM and Chrysler go under made no sense. “It could have been a domino-effect collapse of the domestic auto industry,” he says.
MacDuffie adds that the bailout decision made sense partly to avoid a much deeper crisis, but also to make GM and Chrysler more competitive in the future.
Ultimately, officials decided the nation could not afford another big economic hit, and that if measures were imposed to change leadership, business models and labor costs, then the costs would be worth it. The automakers arguably brought their economic downfall on themselves, marketing large vehicles rather than smaller, more energy-efficient vehicles, especially when gas prices reached all-time highs.
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