By the time the ball comes down in Times Square on New Year’s Eve, a big change will have taken place at General Motors. The taxpayers will no longer own a single share of what was, for many years, the largest private corporation in the world.
That will mark the end of the most successful government “bailout” program in the history of the nation, if not the world.
There are many myths about the auto bailout, one of which — repeated almost daily in various newspapers — is that taxpayers will have “lost” a net $10 billion when the stock sale is complete.
That’s technically true — but in the same way as it is true that you “lose” money when you replace your tires or change your oil, so your car won’t suffer a blowout or engine failure that would destroy the vehicle and might kill you in the process.
The U.S. Treasury did, indeed, give General Motors $49.5 billion to keep the automaker afloat before it could prepare for what was later referred to as a “cushioned” or “soft” bankruptcy.
Stock prices fluctuate, but it looks as if the taxpayers may get no more than $39 billion of that back, when all is said and done.
But that remaining $10 billion may be one of the best and most sound investments in the history of the U.S. Treasury.
Make no mistake about it: If Washington had not pumped billions of dollars into both General Motors and Chrysler in the crisis year of 2009, those companies would no longer exist.
But that would be the least of our problems. We might very well, for one thing, be in the equivalent of a Great Depression. Economists at CAR, the Center for Automotive Research, a nonprofit think tank in Ann Arbor, have intensely studied the bailout.
They concluded that without the bailout, 1.1 million jobs would have been lost in 2009 alone. Another 314,000 jobs would have been lost the next year, and more after that, as the grim ripple effect of the collapse of the industry spread throughout the economy.
The Center for Automotive Research’s Kristen Dziczek estimates that this “worst case” scenario would have cost the government twice as much — $21.6 billion — in 2009 alone.
That would be as a result of fewer taxes being paid, emergency relief programs, and other expenses, none of them good. The loss or personal income would have totaled $400 billion by the end of 2011.
There is even some question as to whether a dying Chrysler and GM would have taken Ford Motor Co. with them. Though Ford was the one automaker not to declare bankruptcy, it uses common parts and material suppliers that might not have survived the end of the other two automakers. Their bankruptcy might have had a domino effect leading to an industry death spiral.
Make no mistake about it. Nobody but the federal government could have saved the automakers at that point. The nation‘s banks were in crisis; Lehman Brothers had gone bankrupt; other firms were tottering There was no private capital available.
Two years ago, Huffington Post automotive analyst David Kiley said flatly “bankruptcy (without the bailout) would have been a prolonged liquidation of GM and Chrysler assets to try and pay off bondholders and other debtors. Brands, plants, machinery, real estate would have been sold off for nickels on the dollar.”
That didn’t happen. Today, General Motors is leaner and meaner, but still has 85,500 employees in the United States.
Chrysler is now part of the Italian automaker Fiat. But both once-bankrupt companies are healthy and making money again.
General Motors had a $2.2 billion profit in North America in this year’s third quarter alone — though one-time losses reduced the company’s overall picture. Chrysler made nearly half a billion dollars.
So to say the taxpayers “lost” $10 billion by making an investment that saved the nation probably many times that is, essentially, a myth. Incidentally, the U.S. Treasury “lost” another $1.7 billion saving the Chrysler Corp. from going out of business.
That makes a total of a little less than $12 billion. How much is that? A little less than one-tenth it cost the United States to fight the war in Iraq in 2009, the year of the automotive bailout.
Today, it seems clear which was the better investment.
Incidentally, there is another myth about the auto bailout: That, like it or hate it, that the man responsible was President Obama.
That’s not quite true. The Obama administration guided both companies through bankruptcy, pushed Chrysler into the arms of Fiat, and forced the firing of former GM Chair Rick Wagoner.
President Obama also dispensed most of the bailout funds. But he wasn’t the man who made the decision to start the bailout itself.
That was President George W. Bush, who, despite intense congressional opposition, authorized the first $17.4 billion to the automakers before he left office. In the end, he rose above ideology.
And for that, he deserves a fair amount of praise.