Although the automobile industry accounts around 5.5% in the median OECD economy, the industry plays an important role in the overall economy and business cycle developments. It can make a large contribution to the economy and hurt the economy at the same time. Let’s take General Motors case for example.
On December 10, 2013, the U.S. government sold the last of its remaining 31.1 million GM shares and exited GM ownership. U.S. taxpayers no longer own GM now. According to USA today, the taxpayer loss on the GM bailout is about $10.5 billion. People might think that saving GM did not have any positive impacts on them. However, according to the Center for Automotive Research, the federal bailout saved 1.2 million jobs and preserved $34.9 billion tax revenue. A total automobile-industry shutdown (from GM and Chrsler) would have cut 2.6 million jobs from the U.S. economy. Without federal intervention, these jobs and tax payments would have been lost in the recession period.
Economists say that the car report suggests that many jobs will be recovered eventually. This will lead to higher employment rates. I personally hope that the Detroit in its heyday comes back. However, their concern is that the migration from the Midwestern states to the Southeastern U.S. (the migration of building manufacturing capacities) can lead to negative consequences including higher unemployment rates in the upper Midwestern States.
Sources:
http://www.usatoday.com/story/money/cars/2013/12/09/gm-treasury-bailout-jobs-saved/3928767/
http://www.bloomberg.com/news/2013-12-09/gm-bailout-ends-as-u-s-sells-last-of-government-motors-.html
3 Comments
From my personal observations it seems that the US car makers have really improved the quality of their products since the crisis in 2008. The cars seem to be better looking, and have better stats(mpg, horsepower) then many of the foreign brands that stole their market share. I hope this trend continues.
Yes, because of foreign auto makers, especially Japaneses and Korean ones, the American ones have been trying to improve their qualities and services to compete better. As we have seen, the big three changed, but if they do much better, than it can change again.
See my blog Autos and Economics for more on the recovery in automotive employment.
Note we can rephrase the numbers: on an opportunity cost basis, we as taxpayers made money on our investment into GM, because the losses from letting it fail would have been far greater than $10 billion.
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