Extended Essay

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K.International School Tokyo Extended Essay To what extent was the interventionist approach of the U.S. government towards the auto industry in 2008-9 justified? Samkit Shah DP Candidate No.: 002120-028 Supervisor: Mark Cowe Date of Submission: Word Count: 3951 Abstract The global recession along with the soaring gas prices hurt the auto-industry very badly. It was so severe that two out of the three American automakers, General Motors (GM) and Chrysler, would fail and liquidate without government intervention. About 1.1 million people were hired in the American auto industry (Welch, 2010), making structural unemployment a big issue. However the two firms were burning through billions of dollars in months, making proper…show more content…
government towards the auto industry in 2008-9 justified?’ By identifying and discussing the various government approaches towards GM and Chrysler available (in the given context), using information collected from various sources and the application of economic theories, a conclusion on to what extant was the interventionist approach of the U.S. government towards the auto industry in 2008-9 justified will be derived. The events that led up to the government intervention In the spring of 2008, the sales of the big three dropped due to a soaring gas prices (Bowner, 2011). The big-recession took hold of the people, during fall. This resulted in a sales plunge, including a dismal 31.9% drop in October, to the lowest level recorded in 25 years (Bowner, 2011). The drop affected all automakers, including Toyota (Japanese firm), which had just surpassed GM as the largest (at that time), reported losses (Bowner, 2011). However due to higher fixed costs, the American carmakers found themselves in a worse situation. So it can be concluded that due to a change in fuel prices and the recession, the American automakers saw a huge drop in sales. Since the sales were not enough to match the high fixed costs the automakers were quickly burning through cash. This led to the pleading of GM and Chrysler for government aid, without which they would run out of money for functioning. This would lead to

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