Automobile Industry - Bailouts, Going Green and Hyundai

3290 Words Oct 12th, 2010 14 Pages
Auto Industry 2009
An important issue regarding business ethics is the theory of moral hazard which occurs when a person or business behaves differently when insulated from a certain risk. Moral hazard theory states that when a person or business is insured against the consequences of a particular event, this increases incentive for the insured to behave in a way that will cause the event (Glassman, 2009). The current government bailout of General Motors and Chrysler provides a vivid demonstration of moral hazard. In order to prevent bankruptcy, the Canadian government bought stakes in both companies totalling 14 billion dollars (Watson, 2009). Chrysler is now owned by Fiat while GM has appointed several Canadian government officials as
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The package also includes special license plates that allow Volt owners to drive in transit lanes. McGuinty claimed that this package will encourage Canadians to buy “greener” vehicles. However, the Ford Fusion, Honda Insight and Toyota Prius, none of which come with a subsidy package, are all more fuel efficient, and therefore “greener”, than the Volt (Morgan, 2009). There is no reason for GM to improve the Volt’s design or fuel efficiency because the stimulus package alone gives them a competitive advantage. This is a blatant attempt at policy-changing in order to promote a company in which the government has stakes. A moral hazard exists in this case not only when these companies are facing bankruptcy, but also for during product development and promotion.
Overall, the Canadian government’s bailout of these automobile manufacturers was a mistake. Not only is it illogical to financially reward a company that reacted poorly to economic uncertainty, it also creates an immense moral hazard. Since the rescue package has done very little to protect Canadian jobs and goes against public and expert opinions, it only seems to be benefitting the executives that created a need for the bailout in the first place. As a result, automobile manufacturers as well as other corporations will begin to believe that no matter how many bad
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