Chapter 12: Auto Executives Plead for Emergency Aid

http://www.financialpost.com/news/story.html?id=970258

Summary
Three Domestic auto manufacturers beg for financial aid from both the Canadian and US government. Letting everyone know that if they can’t survive this crisis, it will ultimately be the average families that get affected and both countries’ economy will suffer a fair amount of damage. GM, Ford, and Chrysler all requested the legislators to “approve US$25-billion in emergency bridge loans”. In unison, the three representatives that appeared before the legislators claimed that if even one automaker goes bankrupt, the whole auto sector would crumble and a domino affect will arise which would result in a lost of jobs for millions of workers and ultimately lower government tax revenue. “ “What we need is liquidity because we’re bumping up against our minimum cash levels now, as is Ford, as in Chrysler,” David Paterson, GM of Canada’s vice-president of corporate affairs.” The auto sector is slowly declining. Over the past 15 years, 500,000 jobs relating to this industry have been lost for US workers.

Connection
To make it through the current economic crisis, companies need an adequate amount of capital to keep their company out of danger. By using various methods, one being cash discounts as we have learned in chapter 12, will temporary assist the company gain more capital which will hopefully keep that company out of crisis. Cash discounts are very beneficial to both the consumer and the retailer. By paying the bill earlier, the consumer will be able to save some cash and this guarantees that the company’s accounts receivables will be paid off. Even though cash discounts will help with the situation, it is only a temporary solution. These small payments are not enough to keep the company running forever. It would be wiser to think of another approach to maintaining that cash flow.

Reflection
Even though these three auto manufacturers are located in Detroit, if they actually do go bankrupt, they have a much larger impact than only in Detroit. A manufacturing company in one city may appear like there’s no connection whatsoever with another city half way across the country, but what if the parts that the auto plant uses is imported from that other city half way across the country? By closing down any one of the three auto manufacturers, there will always be something else that will be affected. Whether it be negatively or positively, no one can be sure until the incident occurs. As I have recently learned in Geography12, “A system is an interconnected set of elements”. In more simple terms, all systems are connected and if there is any disruption in one of the systems, this change will have effects on the other systems. So the representatives are correct in the sense that one auto manufacturer going bankrupt will cause an unbalanced system, which will also cause a dramatic decrease in jobs and affect the citizens.