Once upon a time, General Motors (GM) was widely regarded as the worlds greatest corporation. It was

Once upon a time, General Motors (GM) was widely regarded as the worldʼs greatest corporation. It was the largest employer in the United States; its success was so bound up with that of the nation as a whole that in 1953 its CEO declared that “what was good for our country was good for General Motors, and vice versa. The difference did not exist.”

By 2008, however, GM was not the company it had been. It no longer dominated the U.S. car market, thanks in part to rising competition from foreign automakers. It had high “legacy” costs resulting from  contracts to pay pensions and health benefits to retired workers. And the company was bleeding cash, losing more than $30 billion in 2008. It seemed possible that GM would not just declare formal bankruptcy, failing to pay its debts, but that it would go into actual liquidation, shutting down as a business........

QUESTIONS 

1. While sales of many goods fell during the Great Recession, cars took a much bigger hit than groceries. Why? 

2. Looking at Figure 6-11, you can see that car sales fell much less during the previous two recessions than they did during the Great Recession. What might explain the difference? 

3. General Motors, somewhat unusually for U.S. firms outside the banking industry, has consistently employed a highly regarded economist, who among other things helps the economy make forecasts. (As of 2019 the position was held by Elaine Buckberg, a former student of one of the authors.) Why do you think GM might place a higher priority on economic analysis than, say, Walmart would?

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Annual auto sales (millions of units) 20 18 16 14 12 10 I v 1976 1980 1985 1990 1995 2000 2005 2010 2015 2019 Year Krugman/Wells, Economics, 6e, 0 2021 Worth Publishers FIGURE 6-11 Automobile and Light Truck Sales, 1976-2019 Data from: Federal Reserve Bank of St. Louis and Bureau of Economic Analysis.