Effects of Globalization on U.S Auto Industry

The 2008 Financial crisis had a huge negative impact on the American auto industry . Not being able to meet their obligations, the Big Three ( Chrysler, Ford and General Motors ) asked Federal government for help. In December 2008, they asked the government for a $34 billion bailout to avoid bankruptcy claiming that their failure would create a 3 million layoff in about a year and plunge the economy further into recession.

In January 2009, the Federal government used $24.9 billion from $700 billion bank bailout fund to help the big three and it was paid as follows:

• $17.4 billion for Chrysler and GM
• $6 billion for General Motors Acceptance Corporation (GMAC)
• $1.5 billion for Chrysler Financial   

Ford, On the other hand, decided to use "Term asset backed securities Loan Facility (TALF) ", a government program for auto, student and other consumer loans.

Many opposed the bailout. Critics said the Federal Government should let the Big 3 go bankrupt to  benefit from the concessions they would be given under the chapter 11 of Bankruptcy law which is about "Reorganization" of the struggling companies filing for bankruptcy.
Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its obligations under its plan of reorganization. For Automakers , the benefits of using chapter 11 would be great.They could gain the power to reduce their long term liabilities, restructure their dealership network, get rid of unnecessary brands and reform their obligations to retirees. Out of bankruptcy law, The automakers wouldn't be able to enjoy these concessions since they do not have the legal authority to do so.

Many critics blamed the big three's lack of innovation in an energy efficient era where almost all the big automakers all over the world are trying hard to come up with new models which are energy efficient and attractive to consumers. The fact is, for a long time the Big 3 had dominated the American auto market and they would dictate to American consumers what to drive. They were confident that American consumer would buy their product anyway and that led to a kind of laziness in working on new technologies. As soon as European and Asian cars came to the American auto market, Consumers found these newly arrived models very attractive and that's where the trouble began for American auto makers.

The new rivals were so innovative and their models were so attractive to the American consumers that the Big 3 almost failed to compete with them. So, we can mention the "Lack of enough  Innovation and creativity" as one of the most important factors in the downturn the American automakers are facing today besides the worldwide financial crisis.