Automotive Industry Bail-out Versus
Cash for Clunkers (Scrappage Scheme)
October 28, 2009
Lara Clark, Ann Dienhart, Brad Utrecht
This case study compares two
recent government interventions to stabilize the United States automotive
industry: the automotive industry bail-out and the cash for clunkers program.
The automotive industry in the
Unites States has been seeing reduced sales over the last three decades. The
influx of foreign competitors and declining economy in the U.S. has brought the
Big Three auto companies (Ford, Chrysler and General Motors (GM)) to the brink
of bankruptcy and collapse. These companies were unable to adapt to their
reduced market share through expensive contract claims and legislative
protection against termination of excess dealers. The most prominent reason
that the Big Three continued to see reduced sales was due to lack of
rejuvenation of their products and not following the trends of consumersŐ needs
for smaller, more fuel efficient vehicles.
Automotive Industry
Bail-out. In mid-December 2008, the U.S. government continued their
bail-out schemes used on the banking industry to save GM, Chrysler and GMAC
from collapse as those companies worked towards bankruptcy protection through
Chapter 11 proceedings. The bail-out of these three companies resulted in a
total of $73.35 billion with the addition of policies forcing the companies to
create restructuring plans for their management infrastructure (US Treasury
2009).
Cash for Clunkers Program. Cash for clunkers was a $3 billion rebate program sponsored by the federal government which paid car owners money to trade-in in their old, gas-guzzling cars for a rebate check towards a new car. Car owners who traded in their clunkers received a rebate check for $3,500 or $4,500. 700,000 cars were bought as a result of the program in less than 30 days, which represented 10.6 percent increase in car sales (USDOT Press Release 2009).
Case Study Summary: CS4.pdf
Other Readings:
Automotive Industry Bail-out
Automotive
Industry Financing Program Website
This is the official U.S. Department of Treasury resource for the 2008-2009 automotive industry bail-out.
Automotive Industry Restructuring Plan Fact Sheet
This fact sheet from the U.S. Department of Treasury summarizes how General Motors and Chrysler plan to restructure.
Why Bankruptcy is the Best Option for GM
This is an opinion article from the Wall Street Journal.
Cash for Clunkers
This is the official U.S. Department of Treasury resource for the Cash for Clunkers program with eligibility and administration details.
The Effect of the Cash for Clunkers Program on the Overall Fuel Economy of Purchased New Vehicles
This study models the impact of the Cash for Clunkers program on overall fuel economy of vehicles purchased in July 2009 and August 2009.
This study models the net cost to taxpayers of the Cash for Clunkers program.
Was Cash for Clunkers a Success?
This opinion article from Time Magazine discusses the effectiveness of the Cash for Clunkers program.