Final Inspection

Dear Taxpayer: Your Auto Bailout Loan Is Repaid, With Interest

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The auto bailouts were not speculative investments aimed at delivering a fat return to John Q. Public. They were designed to avoid an economic apocalypse that would have rivaled the Great Depression. Even so, taxpayers have come out a few billion ahead.

General Motors has rejoined the Standard & Poor’s 500 and 100 after being kicked off the list when it went through a U.S.-government orchestrated bankruptcy. This has triggered another round of griping from critics who say the rescue of GM and Chrysler from liquidation was a waste of taxpayer money and a giveaway to President Obama’s union friends.

To these unhappy taxpayers I say: Relax, your $80 billion auto bailout loan is paid in full and you also have received handsome interest and dividends.

I also would like to tell unhappy taxpayers that it is true hundreds of thousands of Americans, many belonging to the United Auto Workers union, did indeed keep their jobs because of the bailout. But hundreds of thousands of non-union blue-collar and white-collar employees at auto-related suppliers, dealerships and small businesses also kept their jobs thanks to the bailout.

GM and Chrysler have paid off their outstanding financial obligations, but bailout bashers still complain about the potential loss taxpayers’ face when the government sells off the remaining shares of GM stock it owns.

The government took a $49.5 billion stake in GM in 2009 as part of the auto maker’s structured bankruptcy. It since has sold part of its GM stake in a late-2010 initial public offering, and the auto maker bought back another chunk of shares earlier this year.

The Treasury Dept. wants to sell its remaining 18% holding by early next year. Analysts say it has to sell the remaining shares for an average of $79 to break even on this part of the bailout.

That’s not going to happen. GM stock almost has doubled in price since last July to $35, but most analysts say the Treasury will take about a $20 billion hit when the government fully divests its holdings.

Even so, that shortfall already has been covered by more serious losses the bailout averted.

According to a study by the highly regarded Ann Arbor, MI-based Center for Automotive Research, more than 1 million jobs would have disappeared if the U.S. government had not rescued GM and Chrysler and their respective GMAC and Chrysler Financial credit units. The cost to U.S. taxpayers of those job eliminations in 2009 and 2010 would have amounted to $28.6 billion in lost income tax revenues, unpaid social security taxes and other negatives related to catastrophic unemployment levels.

“On a 2-year ROI (2009-2010), the government would be ‘made whole’ if it recovered all but $28.6 billion of the $80 billion extended to GM, GMAC, Chrysler and Chrysler financial due to the net public benefits,” says  Kristin Dziczek, director-Labor and Industry Group, CAR.

As long as the Treasury loss on GM stock is less than $28.6 billion, “It’s better than a wash,” she says. “The important piece that many critics (of the bailout) miss is the cost of doing nothing was not zero.”  

Indeed. The auto bailouts were not speculative investments aimed at delivering a fat return to John Q. Public. They were designed to avoid an economic apocalypse that would have rivaled the Great Depression, especially in the industrial Midwest.

“I didn't want there to be 21% unemployment,” former President George W. Bush told the National Automobile Dealers convention in 2012, explaining why he initiated the auto bailout with $17.5 billion in bridge loans prior to Obama taking office in 2009.

The plan worked.

New products such as the Cadillac ATS, Jeep Grand Cherokee and Ram pickup are piling up awards and raking in profits. Factory utilization rates are at all-time highs.

Skeptics who claimed wiping out the debts of GM and Chrysler would put Ford at a disadvantage because it did not receive bailout money were wrong. Ford has emerged from the dark days of 2008 and 2009 with some of its most stylish, fuel-efficient and profitable vehicles ever and its factory utilization rates are among the highest in the industry.

Soaring light-vehicle production has been a primary driver of employment and gross domestic product growth for the past three years. For the first time in decades, Detroit Three labor costs and quality are competitive with Toyota, Honda and Nissan.

So let’s review. A Republican President and Democrat President both agreed to save two failing iconic U.S. auto makers because they believed it was the right thing to do for the U.S. economy and the good of the country.

The strategy worked. Both auto makers now are the healthiest they have been in decades. The government loans are paid back, and there even is a few billion extra left over. Let’s call that interest, because that’s what it is. And the U.S. economy now is getting back on track, thanks in no small part to the reviving U.S. auto industry. That’s a whopper of a dividend.

It is sad many Americans are so blinded by ideology they no longer can recognize success when they see it.

dwinter@wardsauto.com

 

Discuss this Blog Entry 27

on Jun 10, 2013

What about the people that had GM and Chrysler bonds and stock? Is this new way of running the country? Forget about old obligations and pretend everything is fine. We lost money and rewarded UAW with the new stock.

on Jun 12, 2013

The bond holders were not shut out they got warrants for shares in New GM.
Common stockholders typically lose everything when a company goes bankrupt. Don't you read the warnings? "Past performance doesn't guarantee future results and you can lose all your money on stock investments", for example.

on Jun 14, 2013

The auto rescue was not the beginning of a new economic model, it was a successful bipartisan response to an economic emergency that other wise would have plunged the U.S. into a 1930s-style depression. Without government intervention GM and Chrysler would have closed their doors and bond holders would have been left with absolutely nothing anyway. As I point out in the commentary, all Americans benefit from bailouts not just the UAW. Income taxes and social security taxes being paid by workers at GM, Chrysler and auto suppliers now are strengtheing GDP rather than dragging the U.S. economy down with the unemployment, home foreclosures and welfare payments that would have resulted from the loss of more than 1 million jobs.

on Jun 11, 2013

Mr. Winter; I like happy endings as much as the next person. However, this happy story includes professional conjecture which is a fancy phrase for guessing. I know you have to sell readership by glamorizing story-headers to make a dollar, but lets look at apple-to-apple fact comparisons instead of mixing apples and oranges (conjecture). The Assoc. Press concurs with the following facts:

* $49.5B bailout of GM.
* To date, only $32.4B recovered.
* Leaves $17.1B owed to U.S. Gov’t.
* Gov’t still owns 189.2m of GM shares.

To break-even each remaining share would need to be sold at $90.38 (current stock valued at $34.74). So taxpayers – hate to break it to you – but from an accounting perspective your taxpaying dollars come up with a sizeable loss.

on Jun 11, 2013

My comments are not based on conjecture. They are based on an extensive economic study by the Center for Automotive Research. I invite you to look at it: http://www.cargroup.org/?module=Publications&event=View&pubID=13

Presidents Bush and Obama did not bail out GM and Chrysler as an investment opportunity for taxpayers. They did it to prevent economic disaster and to save a key American industry and all the jobs that went along with it. The benefits are obvious here in the Midwest evidenced by soaring employment, housing starts and new vehicle sales. And, if you look at the big picture, as
Bush and Obama clearly did, the effort has paid off handsomely in a reviving economy and increased tax revenues, all spelled out in detail in the CAR study.

on Jun 13, 2013

The Center for Automotive Research, hereafter referred to as CAR, is influenced and depends on ‘donations’ as a non-profit (and yes, the OEMs do ‘contribute’ to CAR). Makes one wonder how scathingly uninfluenced the reports can truly be.

Despite the reservation, the invitation to read what was published was acted on. The referenced 12-page document was reviewed. As anticipated, the report provided the ‘usual’ perspectives – extremes: best-case, worst-case; and cited key-words such as estimated, forecast, potential, scenarios, models, etcetera. Also note CAR referenced REMI (remi.com); a software economic simulation combined with theory. Definitely not exhaustive, factual research.

The report takes one element (automotive industry) into consideration while everything else remains at status-quo. That is not real-life. With some exception, unemployed people look for jobs elsewhere or create new businesses or services which generates employment, income, tax-payments – none of these elements were factors in the report. There were also alternative avenues which could have been pursued versus forced bankruptcy, such as bridge-loans. If another money-funding avenue were pursued, would the job-losses assumed in the report remain an assumption?

As stated previously, the CAR article forwards (at best) educated guessing. We can agree to disagree on this point, but what can’t be agreed-to is a blog-story which reports “taxpayer good news” is at hand; by accounting standards the automotive companies (sans Ford Motor) still owe money loaned during bankruptcy so good news hasn’t materialized because repayment of taxpayer-backed loaned money hasn't been fully repaid...and never will be. There is now, and will continue to exist, a taxpayer loss on the accounting books.

If you still think taxpayer good news is at hand - read the SAMPLING of working-taxpayer pain in other comments posted to this story – people who lost their money in GM/Chrysler stock, had their future placed in jeopardy with lost or compromised pensions, experienced loss of health-care coverage and more (important aspects the CAR report also did not factor-in). Lives were destroyed by a bankruptcy that served corporate interests more than those of the taxpayers (and workers). Hardly good news by any standard.

on Jun 14, 2013

CAR does research for all sorts of auto makers, suppliers, state governments and other entities far removed from GM and Chrysler. It is unfair to suggest their conclusions are inaccurate based on some sort of bias. Frankly, your "what if's" sound a lot more theoretical than CAR's report.
You are suggesting more than a million unemployed auto-workers could have found equivalent jobs and benefits in the Midwest in 2009 and 2010? Based on what?
You also are suggesting GM and Chrysler could have obtained $80 billion in financing from banks in 2008 and 2009 for a restructuring of some kind. Which banks or investment institutions were making those type of loans in 2008 and 2009? Zero. Credit was virtually frozen.
China, the European Union, Russia and Brazil all bailed out their auto industries in 2009 and later offered "cash for clunkers" type deals because no private money was available and because all these governments would have been stuck paying the social consequences of massive unemployment for years to come if their auto industries failed.
Major industrial countries, and developing countries, try to build local automotive industries because the car business creates high-wage, high-skill, sustainable local jobs like few other industries.
A highly advanced domestic auto industry with strong exports and a sophisticated supply base is a major reason why Germany remains an economic powerhouse while most of the rest of Europe is struggling.
As far as taxpayer pain goes, thanks to a resurgent auto industry and supply base, unemployment has plummeted in every state where there are auto and supplier plants. Housing foreclosures and other negative enonomic factors are down while housing prices, income and consumer debt ratios all are headed in the right direction.
The negative comments are coming mostly from investors who lost money and dealers who feel they or colleagues were treated unfairly. Many dealers did have to be eliminated during the bankruptcies and clearly some were treated unfairly.
But if you look at the reviving U.S. economy and the resurgent manufacturing economy driven by autos and still can't see the overwhelmingly positive impact the auto bailouts have had, then you are one of three things: a disgrunted investor, a dealer whose franchise was revoked, or like I said in the blog, someone so blinded by idealogy you can't recognize success when you see it. Combine all these three and they still amount to a tiny minority compared with the millions of Americans who benefitted.

on Jun 11, 2013

The auto union bailout was a highly speculative investment which the current market value of the governments GM holdings vs the amount still owed suggests. All these bailouts did was steal money from the bondholders and investors and give it to the labor unions while kicking the can down the road. It was a shameless and illegal chicago style shakedown and intrusion into the marketplace. If GM couldn't meet it's obligations it should have gone into BK ...filed a plan ..sold off assets ... and renegotiated all of those unsustainable contracts to ensure it's survival and emerge lean and mean ...that's how things are supposed to work, that's how the market weeds out the weak performers and allows for a corporation to make some major systemic changes for the better. GM wouldn't have ceased to exist ..it just would have allowed them to regroup (like the ultimately did to a lesser extent)

on Jun 11, 2013

Roger is absolutely right. GM needed bankruptcy to reorganize and renegotiate the union contracts, but they sure didn't need to screw the bond holders and turn the company over to the very people that capsized it.
GM figured out a long time ago that they had a choice. Let the mafia go on strike and break them then, or agree to their unsustainable demands and go broke in 20 years. They opted to kick the can down the road. We were at the dead end of that road when the economy realized we had a new anti-business, communistic administration coming to town. So what would a anti-business, communistic administration do?
Break all the rules and pad your buddy's pockets at the expense of the honest folks. Now, the American people will be funding that 'unsustainable' pension.

on Jun 12, 2013

It is valid criticism that the Obama Administration constructed the Bankruptcy Reorganization of GM and Chrysler with a strong bias in favor of the UAW. That is actually a rather trivial detail, considering the full scope of the problem and the actions necessary to resolve it. In addition, the UAW contract of 2007 actually was a breakthrough change, lifting over $8B a year in "entitlement" type costs from GM alone. In other words, most of the changes needed in the labor contract had already been agreed to, just not in time to keep the companies from being swamped by the financial crisis tsunami that collapsed the market and the industry.
Most importantly, successful bankruptcy reorganization of an automaker has NEVER occurred in history before. The claimed reason for not forcing a new Labor contract as part of the bankruptcy was that time was of the essence, and it could not be done in reasonable time. The bankruptcies had to be lightning fast to avoid pushing the companies into death spirals because of the volume dependency of the business.

on Jun 12, 2013

Bush initiated the auto bailouts, not Obama. While he was philosphically opposed to the idea, his adivsors told him doing nothing would cause an economic disaster.
"The problem is, sometimes the circumstances get in the way of the philosophy,” he told the National Auto Dealers Assn. meeting in 2012. He also told the meeting he has no regrets about his decision, even though he paid a politcal price among Republican party loyalists.
http://wardsauto.com/politics/bush-no-regrets-bridge-loan-auto-makers
A recent study by the Center for Automotive Research reveals that GM's fully loaded labor costs have gone from $79 per hour in 2006 to $56 per hour in 2011. Toyota's hourly labor costs are estimated to be $55 per hour. Chrysler's costs are $52 per hour.

on Jun 14, 2013

The so-called bailouts represent one of those times when it is the role and duty of government to step in to prevent a national economic catastrophe. Some people doubt an apocalypse would have occurred, but I disagree with them, and was not up to testing their theories. It would have been reckless for Washington to have done nothing and then regretfully realize the doubting ideologues were dead wrong.

on Jun 14, 2013

Those in the industry know that if GM and Chrysler would have went under, for every 1 automotive job lost, 3-4 more would be lost when factoring in suppliers. It would have near crippled Ford as well for how interconnected the Tier 1's and 2's are.

on Jun 18, 2013

Drew, get your facts straight. It was a not loan for all auto companies. It was a loan for Chrysler who paid back the money, Ford took no government bail out assistance, GM was purchased by the government and the government lost 50% of the investment, $25 billion.

The GM bail out was not good for the economy and the US. The GM bail out represents what is wrong with the US today. It amounted to rewarding incompetence.

Because if you're right that the government purchasing failing companies and losing 50% of the investment is good for the US, then the no company should ever fail, we should have the government simply buy all failed companies. But you are wrong, all the GM bail out did was increase the federal debt.

on Jun 18, 2013

My facts are straight mzllrc. You did not read my commentary. For one, I clearly point out that Ford did not receive bailout money.
My blog is based on the study below and the fact that I create commentaries based on facts and deductive reasoning, not talking points and political dogma. I like my ideas to be challenged, but you need to read more than the headline before commenting.
http://www.cargroup.org/?module=Publications&event=View&pubID=13

on Jun 19, 2013

Drew, I read your post where you stated the typical deceptions by those who support the auto bail outs implying that all the money has been returned while you bury in the article the real issue. The real issue is that the government purchased 50% a private company that had failed for $50 billion dollars and lost 50% of the investment in that company, GM. The issue is not the loans, it’s the purchase of failed companies and you ignored what I said about that, I said if it’s good for the economy to have the government purchase failed companies and lose half the money as you claim, then the government should purchase all failed companies. No company should ever go bankrupt again given your line of reasoning. But I disagree with that kind of thinking, because as Thomas Jefferson said, “The government can only give what it first takes from someone else.” The government took money from hard working Americans that were paying their taxes, paying their debts, adding positive wealth to the economy and gave it to a failed company, GM. Your line of thinking is dangerous because you believe the government can create gold. Because again as Thomas Jefferson said, “Once a society believes that the government can give them gold, they are doomed.” The government doesn’t create anything, it only takes. The purchase of GM only amounted to an increase in the federal debt. That’s all it did and nothing more. It didn’t help the economy. Add to that what kind of message does it send to those that play the “rules” like Ford, who EARNED their way with their own sweat and tears , had the wherewithal to see the trouble their company was in, took the risk to take on additional debt, and are paying that debt back? The government purchase of GM makes Ford look foolish. Why should a company worry about making bad decisions when the government will simply give them money? That’s logical conclusion to your line of thinking. But the fact is the government purchase of GM amounted to rewarding incompetence.
You’re wrong Drew, the government purchase of GM was bad for the United States, not good.

on Jun 21, 2013

Criticism of auto bailouts usually is based on sound philosophy but erroneous assumptions.
The first wrong assumption is the bailouts began with President Obama. President Bush initiated the auto bailouts with $17.5 billion in bridge loans in late 2008. Last year, Bush said he had no regrets.
The second faulty assumption is that super-fast structured bankruptcies would have been possible with private funding. Wrong.
The third and most glaring error is the idea that the cost of doing nothing was zero. The lost payroll and social security taxes caused by the elimination of more than 1 million auto industry jobs was not nothing. It was revenue. Losing it would have been a huge blow to the U.S. Treasury. The Center for Automotive Research conservatively estimates lost taxes and other social costs caused by allowing GM and Chrysler to go into liquidation would have amounted to $28.6 billion in just the 2009-2010 time period.
In normal times, all failing businesses should be allowed to fail, but 2008 and 2009 were not normal times. The U.S. was struggling with the worst economic collapse in 75 years. Allowing GM in particular to close its doors at that time would have plunged the nation into a 1930s-style depression and added even more to the national debt.
Because GM stock nearly has doubled in the past year, the latest estimates for the Treasury’s loss on GM stock when it finally divests its holdings peg the shortfall at $10 billion to $12 billion. The $25 billion loss estimate is long out of date.
Now GM and Chrysler are doing well, and will be adding tens of thousands more new jobs in coming years. Averting an economic disaster saved taxpayers billions.
Two Presidents saw that the survival of GM, in particular, was good for America. It’s time critics realize the automotive rescue was good for America as well.
On a clear day, you can see the headquarters of GM and Chrysler from the WardsAuto offices. You would have to be blind not to see how much their survival has improved the economy of Michigan and surrounding states.

on Jul 22, 2013

Not bad. The bailouts the government made numerous years ago, to keep some huge financial firms open and to prevent further fiscal chaos, may have not been as bad an idea as many imagined. One of the biggest bailouts was the AIG bailout, which came to almost $200 billion being lent to the institution by the working class individuals. So far, the government has actually made a profit on AIG, about $18 billion worth.

on Jul 22, 2013

The key difference between the auto and bank bailouts is that GM and Chrysler executives and employees were forced to make sacrifices and change the way they their businesses operated. Key executives lost their jobs, others lost perks and took major salary cuts, white collars and blue collars all made big sacrifices. At the banks and AIG, no one was fired, they kept their corporate aircraft, giant salaries and even were paid bonuses with taxpayer bailout dollars. Everything has changed at GM and Chrysler, little has changed in the way banks and AIG do business.

on Dec 2, 2013

The government isn't really the worst stock investor on the planet. More than $180 billion was lent in the AIG bailout, but so far, the profit has been almost $18 billion, a return of almost 10 percent.

on Jan 13, 2014

The government isn't really the worst stock investor on the planet. More than $180 billion was lent in the AIG bailout, but so far, the profit has been almost $18 billion, a return of almost 10 percent. How often have you expected additional information on how to apply for a payday loan and turned to an internet search on payday loan?" Your search is over, all the information you need is at http://www.MatchFinancial.com.

on Mar 8, 2014

GM should have folded due to piss poor management. The american people would have been better off if we had...

on Apr 17, 2014

Your website is really cool and this is a great inspiring article.

on May 27, 2014

so good news hasn’t materialized because repayment of taxpayer-backed loaned money hasn't been fully repaid...and never will be. There is now, and will continue to exist, a taxpayer loss on the accounting books.

on May 27, 2014

As the commentary points out, more than a million people in the industrial Midwest are employed, paying taxes and making house payments instead of being unemployed and forced out of their homes. Michigan's unemployment rate now is half what it was in 2009 and housing prices have risen 50% in the state since GM was bailed out. That's good news that materialized quite a while ago.

on Jun 19, 2014

When economic crisis arises, there comes recession, foreclosure, bankruptcy, food shortage, and rising unemployment rate. When a number of large companies went to the federal government for a bailout during the recession several years ago, one of the first things the American people wanted curbed was exec payment.

on Jun 19, 2014

Executive salaries at GM were chopped and tightly controlled during the bailout and until the government sold off its shares in the company. Perks such as corporate aircraft also were eliminated. Not so with the banks that were bailed out. They kept their private jets, giant salaries and paid out bonuses with taxpayer money. It's important not to confuse the two. GM and Chrysler were forced to make big sacrifices from top executives to hourly folks in the successful effort to save more than a million jobs during a time of economic crisis.

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