The taxpayer bailouts that enabled General Motors and Chrysler to emerge successfully from bankruptcy three years ago saved the U.S. auto industry, the supply chain that serves it, and the million-plus jobs they provide.
The rescue was especially important to the economic recoveries of the auto-dominant states of Ohio and Michigan. But now it’s time for Washington to get out of the car business.
As part of the GM bailout, the federal government took roughly a one-fourth ownership stake — 500 million shares — in the private automaker. GM said last week it would buy back 200 million of those shares for $5.5 billion, a premium of about $2 a share over its market price. The Treasury Department says it will sell the rest of its GM stock by early 2014.
The government — read: taxpayers — is likely to lose money on the deal, as much as $20 billion by some estimates. Washington lost more than $1 billion when Chrysler redeemed its stock.
Does this mean the auto bailout was a bad deal? Thankfully, we’ll never know how much damage the collapse of GM and Chrysler would have inflicted on the domestic economy.
But credible analyses suggest that the fallout would have been far greater than the losses taxpayers will take because of the bailout. That’s especially true when you consider how both automakers have recovered since bankruptcy: new and restored jobs, higher sales, more consumer lending by the finance companies with which they work, fatter profits, more cash on hand.
Treasury might reduce the loss if it held onto its GM shares longer, but to what end? GM officials argue that the limits imposed by the terms of the bailout on what it can pay its executives are hampering its necessary restructuring efforts, and placing it at a disadvantage to its industry competitors.
Both President Obama, a Democrat, and George W. Bush, his Republican predecessor, understood that recovery from the Great Recession would require a strong domestic auto industry. The bailout has encouraged the industry and government to work productively on developing more fuel-efficient, less-polluting cars and trucks. That vital cooperation must continue.
Despite the success of the bailout, the derisive label “Government Motors” has created a stigma that the automaker is understandably eager to shed. Now that Washington has helped ensure GM’s survival, it’s time to allow the company to return to the private sector.