Bankruptcy Would be Destructive

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One of the Big Three’s main arguments for a bailout is that American consumers won’t buy General Motors and Chrysler cars if they are forced into bankruptcy. They would be tainted by a stigma and by worries that warranties and parts wouldn’t be available years down the road if the firms ran the risk of liquidation.

Consumer surveys support this view. One survey of 6000 consumers by CNW Research this summer found that 80% said they would abandon an auto maker if it were to file for bankruptcy. One of the most vulnerable, CNW’s survey found, was Chrysler.

Does the argument hold up? One way to test it is to look at consumers’ actual behavior. The risk of bankruptcy has obviously risen in the past few months. If bankruptcy is likely to drive consumers away, one might expect to see the market share of GM and Chrysler fall more precipitously as bankruptcy risks rise.

Read the full article at The Wall Street Journal

Date published: Dec 12, 2008

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