ECON 101 Lecture 8: Section 1 Part 8
30 Apr 2018
School
Department
Course
Professor
Economics 101
Lori Leachman
Part 8 • Discussion
• Ford & GM losing money on small cars (low margins) but continued making them
o Cafe standards of fuel efficiency (smaller cars lowered average and were more efficient)
o Poor quality on small cars
o Jobs bank from union - if laid off workers would still pay their income
• Ford & GM sales strategy targeted rental companies, created large small car second market (more
substitutes, elasticity increases and decreases selling price)
• GM had to bailout while Ford did not as it prepared itself for downturn
o Ford had restructured prior to 2007 (closed plants & stopped lines of cars)
o Ford issued bonds prior to 2007 that gave them cash
o Ford had a government line of credit
• Bankruptcy protection (Chapter 11) helped GM
o Allows firm to renegotiate contracts (pensions, health care, jobs bank with union)
• Ford & GM returned to profitability
o Labor
▪ Eliminated jobs bank
▪ Introduced a second tier of labor with flexible wages and reduced benefits
o Capital
▪ Consolidated plants
▪ Modified & simplified assembly to few basic models
▪ Cut dealership & distribution system - overcapacity
▪ Redesigned small cars with eye to quality
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