Recently, we have all heard about the financial crisis. Many industries have suffered beginning from the banks, the first and worst hit industry. Since many were retrenched, the consumer-based industries have suffered. This time, the auto industry was hit. Three big auto companies, General Motors, Daimler Chrysler LLC and Ford, were in trouble this time. The $14 billion emergency loan for the companies was cancelled as the Senate failed to approve of it. Why did they do so? What effects will it have?
The reason given by the Senate for their disapproval was that the conditions they gave to the UAW union were not met. Mr. McConnell, a Republican, thought that the conditions set were not “tough enough”. He felt that Republicans ought to support Mr. Bob Corker’s plan due to flaws in the original proposal as it provides the automakers money to make changes that may or may not happen. Under Mr. Corker’s plan, the automakers would required to cut their debts by 2/3 by 31st March next year. It is a colossal sum as G.M. alone owes more than $60 billion. They would also need to slash their salaries to equal that of their Japanese counterparts. The companies would also need to impose similar rules.
It was over this proposal that the talks eventually reached a bottleneck. The Republicans had wanted the automakers to meet that requirement by 2009, but the Democrats and the union insisted that the deadline should be 2011. When that happened, the Republicans had refused to back the bailout on the grounds that the automakers can increase their competitiveness and survive the competition if their plan was taken. Therefore, the proposal did not meet the required amount of votes and was rejected.
The effects were immediate- shares fell sharply around the world after the bailout was rejected. The automakers, naturally, were among the hardest hit.
The refusal of the bailout is sure to end with huge job losses. The automakers are...