Leiden Law Blog

Ford Genk: victim of the law of unintended consequences?

Ford Genk: victim of the law of unintended consequences?

Last week the Ford Motor Company from Detroit announced that it will soon close down their production plant in Genk (Belgium) due to lack of demand. As a result thousands of people will lose their jobs. Naturally the employees are angry, as well as local politicians. I can understand their anger.  I can also understand their call to the  Ford management to keep the factory open, as well as the discussions in parliament, on the street and in the media to have the government intervene. Perhaps offering certain kinds of aid, maybe in loan facilities or by relaxing some (social benefit or other) rules and by doing so,  making it more attractive for Ford to keep the factory open.

The discussion reminded me of the 2008/2009 bailout attempts of General Motors. In November 2008 the liquidity of that company was almost dried up which led to GM almost ‘begging’ for a couple of billions of dollars in Washington. And although reluctantly, the US Senate did eventually agree to provide the bridging loan. The reasons for saving GM can probably be traced back to the fear of mass unemployment and other economic disaster. Estimates from around that time indicated that a full or partial collapse of the Detroit 3 (General Motors, Ford, Chrysler) could have led to a worst-case scenario of 2.5 to 3.0 million people losing their jobs, and perhaps 200 billion of costs for the government related to unemployment benefits and investments in economic growth. In that respect 20 billion seems ‘pocket money’.   

What does the GM bailout have to do with the closure of Ford Genk? Well, on page 114 of the General Motors 2009-2014 Restructuring Plan, which was submitted to the US Department of the Treasury in order to be bailed out, an intriguing fact can be found. Named by GM as “The Daewoo Experience” a statistic shows that following the bankruptcy of Daewoo some years ago the resurrected company experienced a permanent sales drop of 40%.       

Suppose GM had not been bailed out in 2008/2009, and suppose the company had not been restarted with help of the US government – the company is nowadays nicknamed “Government Motors” – what would have happened to the demand for Ford vehicles in the US and beyond? How many customers would have switched to the Ford brand? We will never know.

Are the employees of Ford Genk victims of the law of unintended bailout consequences? We will never know.

By the way, Ford did not receive any bailout money in 2008/2009; the company had to save itself…

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