Reference no: EM132414848
Why Did GM Require a Federal Bailout?
In 2009, General Motors (GM), once considered America's greatest and most influential corporation, was on the edge of collapsing. Economists have claimed that the cause of GM problems was partly from the economic downturn, but mainly due to a cost structure established many years before. The company was saved by a federal bailout and is now profitable.
Should GM have been saved? Why? If so, should every major US corporation also get "saved"?
What could GM have done to avoid its financial problems?
It is OK to check online for answers or you can ponder GM's economic loss in 2008 and consider a list of possible changes that could help GM reduce (or even eliminate) losses, such as lowering costs, raising prices, or increasing sales.
For cost cutting, think about whether the costs are fixed or variable and how those lower costs shift the appropriate cost curves to reduce losses.
For higher prices, identify that if GM is in a competitive global market, they are price takers - so what global market changes would have to occur for GM to charge higher prices?
As for increasing sales, if costs and marginal revenue are held constant, does selling a greater quantity reduce losses or create larger losses?
Do you believe that it is the role of the government to help businesses incurring losses? What are the arguments in favor of and against the government intervening in which businesses succeed and which are allowed to fail?
Do you think the new GM will remain profitable? If so, what does that mean for Ford?
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