The Rescue of the US Auto Industry, Module Z:Overview

In the fall of 2008, credit markets tightened amid a broader economic downturn that severely impacted the US auto industry, especially the three largest domestic manufacturers, General Motors (GM), Ford Motors, and Chrysler. The companies requested assistance from the government in a bid to stay afloat, but Congress declined to authorize funding. The Bush administration, however, provided bridge loans to GM and Chrysler under the Auto Industry Finance Program (AIFP), funded through the Troubled Assets Relief Program (TARP), to sustain them until the Obama administration was in place. Within months, the Obama administration decided that a speedy bankruptcy would be the appropriate way to restructure the companies into viable organizations. Treasury provided financing via TARP as Chrysler, then GM, went through an expedited bankruptcy process. In support of the restructurings, Treasury also provided assistance to GMAC, Chrysler Financial, and to certain auto suppliers, in addition to supporting consumer warranties, bringing total government support for the industry to approximately $80 billion. Although the government lost money on the AIFP, the rescue was relatively popular politically and both companies returned to profitability in 2011. This case discusses the various aspects of the government’s assistance to the auto industry that began in December 2008 and wound down in December 2013