Was the Auto Bailout Worth it?

Some experts are debating whether the government stepping in and bailing out corporate industries was a good move. They state it could be harder in the future for these companies to gain capitol on their own after they receive the loans.

The government bailed out the auto industry by agreeing to loan General Motors and Chrysler a total of $17.4 billion to keep them alive during this tough economic crisis and poor auto market. But both companies have been given a three month window to prove profitable and be able to compete in the auto market.

Now if these two companies do not prove profitable in the future, then they will have to pay back the loans to the government and quite possibly declare bankruptcy.

Many experts are trying to determine if government taking control of these businesses will be the downfall of corporate capitalism for the future in this tough economy where maintaining capitol it vital to any and all businesses.

Other experts state the government’s decision to step in will not set the tone for future corporate bankruptcies. Many think that no politician in this current economic status would let these major corporations fail, so they had to intervene.

According to the Houston Business Journal, Stephen Lubben, a law professor at Seton Hall University specializes in corporate debt and financial distress. He states that although in the short term, this may seem risky; many people will come around and understand that these are special cases, just like Penn Station in 1971.

The first major corporation bankruptcy was in 1971 with Penn Station and the federal government stepped in. They created the Railroad Revitalization and Regulatory Reform Act of 1976. The act kept the company from filing Chapter 7 bankruptcy. This funded the reorganization of the railroads and led to the creation of Amtrak.

The Houston Business Journal also states that some feel the government stepping in is for the great economic good but that the process must be fair and impartial. Tom Donohue, president of U.S. Chamber of Commerce says he will watch closely to see the interactions between the government and United Auto Workers (UAW) with the car companies.

He wants to ensure they do not intervene and take over important decision making, that he feels should be left to the management. He also states that the government should release ownership as soon as possible for these companies to succeed.

President Obama stated that the government will own 60 percent of GM and his goal is to get these companies on their feet and running smoothly. He also reinforced that any decisions such as where to open new plants or what types of vehicles to design next will be left up the GM, and not the government.

Only time will tell if the government bailout will help these companies thrive again in the future; but for now the government has provided these companies time and a possible chance to survive.

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