Schaeffler is a German family-owned company manufacturer of car-parts and believed to create synergies in the automotive market by taking over another German car-parts manufacturer, Continental, which is about three times the size of Schaeffler! This takeover would lead to one of the biggest car-parts supplier in the world.
The way Schaeffler financed this takeover was by raising enormous amounts of debt, instead of issuing bonds for example, to buy Continental shares. On the one hand the tyre business of Continental was thought as so valuable that if Schaeffler could sell it, it could pay off a significant amount of debt. The other side of the story is that this operation is so risky it could fail in many ways.
In first many investors felt the offer of Schaeffler was too low but unfortunately for Schaeffler the stock market crashed and investors were eager to sell their shares, therefore Schaeffler ended up with almost all shares of Continental.
With the steep decrease in demand in the automotive market both firms are very vulnerable and Schaeffler asked the German government for a bail-out of the ‘national champion’. Without the bailout thousands of people will lose their jobs and Continental will not survive as the two operations of both companies are not yet integrated and benefit from synergies. The German taxpayers will eventually have to bear the burden of this irresponsible takeover.
Is it Ethical for governments to bail out companies which are too big to fail? On the one hand people keep their jobs and companies are still doing business which is good for economies, but on the other hand it could encourage managers to take risk because they know they will be saved and therefore gain advantages over competitors.
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http://www.economist.com/business/displaystory.cfm?story_id=13278374
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3 comments:
Consider the current economic situation. Morally seen people who have a job have the right to keep that job. But without the bailout these people will (possibly) be losing their job naturally because of a drop in demand in the car/automotive industry.
Using the utilitarian approach (achieve highest happiness), on the one hand I would say that not bailing out would be the best option because as stated the burden of the takeover will be calculated through to all the citizens and hence all Germans would be effected but to a limited, one would not really notice this. On the other hand bailing out will prevent 1000 people from getting hurt tremendously (the utilities of the parties do not have the same value).
I conclude that in a normal economic situation the bail out should take place, but in the current economic situation the bailout should not take place because of the reasons mentioned above. Besides I do not believe that bailouts result in an increase in risky behavior by managers because they are morally obliged to do the best they can for themselves, the company and its personnel (they owe it to them).
People indeed have the right to have a job and the right to keep it under fair conditions. I understand the reasoning of what s615793 said about not bailing out using the utilitarian approach. But then you look only at the number of people which get financially hit. But you have to look at the overall utility, and how much each measure weights to conclude what the best solution would be using the utilitarian approach. In this case, I think the thousands of employees which lose their total income weights a lot more than the minimal burden calculated to all German citizens. Thus overall using the utilitarian approach I would conclude the opposite, that bailing out would be best. I think this would be concluded by the rights-based theory as well, since everyone has the right to an adequate standard of living.
s898965
Considering the position where workers act in right now I agree with s898965. The financial losses of the employees weight heavier than the minimal burden calculated to the German citizens. So following the utilitarian approach the most happiness is achieved by bailing out. But I disagree with s615793. I think that bailing out indeed results in an increase in risky behavior by managers. A manager owns his personnel and other related people to act in a proper right way. When they prefer a risky acquisition with borrowed money rather than for example by selling bonds with long maturity, they handle morally wrong, because they know from the past (crisis in the 30-ties and the recent burst in the housing market) that they act wrong. They should not take risks concerning so much people. But they take the risk pure for their self interest! Because they know that the government will help.
S760912
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