Yglesias

The Cascade Effect

CREDIT:

I wondered last night why Ford wanted a bailout for its competitors at Chrysler and GM even though Ford isn’t facing imminent bankruptcy. It seemed to me that the collapse of GM and Chrysler would be a boon to Ford and vague talk of a “cascade through the entire domestic auto industry” didn’t really explain it to me. Steven Pearlstein gets a bit deeper in terms of spelling this idea out:

The fear is that if either files, the other two companies would be forced to follow suit as parts suppliers fail and consumers get even more nervous about buying a car from a company in trouble.

This still seems a bit weird to me, but I suppose that makes some sense. I’d like to know more about Ford’s logic, though. Indeed, given the quality of management these companies seem to have had over the past few decades it’s perhaps worth considering the possibility that Ford management is just mistaken.