Varieties of moral hazard in the global automobile industry

The automobile industry has witnessed various examples of moral hazard because of its highly politicized nature. This chapter highlights two contrasting types of moral hazard: the liberal critique of state interventionism and the critical view of short-termist financial capitalism. The former type of moral hazard is seen mainly in coordinated market economies, where the government intervenes through industrial policy and bailouts. A striking illustration is the Nissan and Renault cases subject to intervention by the Japanese and French governments. The latter type of moral hazard is observed primarily in liberal market economies, which emphasize short-term shareholder value and financial returns. The most telling example was the General Motors case where insufficient R&D investment and dependence on captive finance served to maintain large dividends and retiree benefits.