Market Failure an Analysis of Essay

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With all of these factors contributing to the American auto industry nearly collapsing, the U.S. government had to take into account how critical this is as an industry for the economically ravaged states of Michigan, Ohio, Illinois, Wisconsin and many of the southern states including Alabama, Kentucky and Mississippi. The U.S. government actually had no choice but to bail out this failed industry as at one point it was projected that nearly 250,000 to 350,000 jobs would be directly or indirectly lost as a result of the failure of the American auto industry. Further, foreign auto makers including Renault, Daimler Benz, who eventually did buy a significant portion of Chrysler, and Hyundai all began bidding on the assets of American auto manufacturers. Congress was pressure to save this industry and the jobs associated with it. The fact that many in congress owed their jobs to the constituents whose jobs would go away if the industry did brought a tremendous clarity and urgency to the U.S. House of Representatives and U.S. Senate debates. If the government did not bail out these industries, congressmen and senators would certainly be voted out of office at the next election and vilified as not being strong enough to keep the most American of industries, automobile manufacturing, within the U.S. (Hansen, 2009).

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With not only hundreds of thousands of jobs on the line but their own as well, congressmen and senators went to work to craft the biggest bailout of any manufacturing industry in history (Hortaccsu, Matvos, Shin, Syverson, Venkataraman, 2011).

Conclusion

If the U.S. auto industry had not allowed itself to become so complacent, literally ignoring the market signals from every area of its business model in conjunction with taking a harder line on unreasonable labor demands, it would have averted a market failure. The U.S. government had to replace the billions of dollars lost in sales with subsidiaries, refilling the company's financial reserves despite the incompetency of running a multi-billion dollar business with a myopic, dangerously blind focus to customer-driven results. The factors that led to the market failure of the auto industry show how governments are forced to pay for a lack of customer focus in industries......

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