The traditional U.S. auto industry (the Big Three) has struggled for many years against competition from foreign-owned automobile companies. Their struggle was dramatically heightened in 2008 with the world-wide credit crunch and economic slowdown.

Automakers came to Washington in late 2008 asking for Federal financial aid to avoid bankruptcy and possible liquidation. Their reception was chilly, but after heated debate, General Motors and Chrysler were granted government loans and loan guarantees.  Ford Motor Company decided to rescind its request for government aid in order to avoid the conditions placed upon the proffered loans.  At present, Ford and General Motors are profitable again; Chrysler continues to struggle but is making some economic headway.  As part of the conditions placed upon the economic assistance, Chrysler is now controlled by Fiat.

Should the U.S. Government (which means, the U.S. taxpayers) have aided the automobile industry? Why or why not? As part of your discussion, keep in mind that the U.S. already has another successful automobile manufacturing industry, but it is not centered in the north of the country. Toyota, Honda, Daimler-Benz, and others have manufacturing plants in the South that, although impacted by credit crunches and recessions, have done well while the Big Three struggled.

What policy towards the automakers should we pursue? Should government leaders have provided outright grants to struggling automakers; what about more loans or loan guarantees? Should we have stood back and let the market determine which companies stood or fell? Should we have encouraged mergers, and, if so, based on what criteria?

Concentrate on using your managerial economics knowledge, tools, and concepts to weigh the pros and cons of the alternative paths the government could follow regarding domestic automakers. Make your arguments as a trained economist able to rationally analyze a vexing problem. Support your positions with the wealth of material in this week's assigned reading.