Car Industry Crisis

The car manufacturing business has been deep in government pockets for years especially with the most recent crisis in 2008 in which two of the “Big Three” car manufacturers asked for a $25 billion bailout for their plummeting in sales “due” to the financial crisis of that year. (Amadeo, 2008) Ford, unlike GM and Chrysler, planned for a rainy day had set aside a line of credit in the event of a rainy day. (Hoffman, 2013) As a result of their bad planning GM and Chrysler were forced to close plants, layoff workers, dissolve product lines even after the 2009 bailout. (Amadeo, 2008) The question was whether GM and Chrysler this was truly the result a bad economy or poorly managed business was of much debate. It is true that in 2008 the economy was met with soaring gas prices prior to their 2009 bailout and the financial crunch caused by the mortgage crisis did not help either, but why GM and Chrysler, and not Ford or foreign companies like Toyota? (Amadeo, 2008) Maybe there was a little arrogance involved. Chrysler has always been the underdog when it comes to car sales, but GM historically has been the US leader running ahead of Ford in sales. However, since the recession, Ford has shown consistent profits from year to year now tripling GM in income, and having 10% more in manufacturing asset growth. (Yahoo Finance) This is mainly because Ford’s CEO Alan Mulally, a former CEO success at Bowing, saw the trends and acted in a last ditch effort. (Hoffman, 2013)

In preparation for the immanent housing bubble about to ignite, Mulally borrowed $23.4 billion to prepare for the crisis and used much of the money to launch an R&D campaign focused on fuel economy. (Hoffman, 2013) This plan was a five year plan aimed at Ford surpassing GM in truck ‘and’ car sales once the recession recovery took place. (Hoffman, 2013) GM and Chrysler both were still only looking at truck sales which could garner 12% more profit than car sales (assuming gas prices stayed under $4). (Amadeo, 2008) These two dinosaurs of the car industry relied on politics as usual to keep gas prices low and bail them out in a crunch if the economy took a hit. (Amadeo, 2008) This arrogance and resistance to change can be seen by their much higher lobbying efforts in comparison to Ford: GM nearly doubled Ford’s lobbying power in 2008 and Chrysler, a third in size to Ford, nearly matched them in lobbying in that same year. (OpenSecrets.org; Yahoo Finance) While for Ford came close to bankruptcy and had