DETROIT — 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. American 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 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.
The U.S. Treasury gave General Motors $49.5 billion to keep the automaker afloat before it could prepare for what was referred to as a “cushioned” bankruptcy.
Stock prices fluctuate, but it looks as if taxpayers may get no more than $39 billion of that back. But that remaining $10 billion may be one of the best and soundest investments in the history of the Treasury.
If Washington had not pumped billions of dollars into 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 the Center for Automotive Research (CAR), 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. 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.
Kristin Dziczek of CAR estimates that this “worst case” scenario would have cost the government $21.6 billion in 2009. That would be as a result of fewer taxes paid and of emergency relief programs and other expenses, none of them good. The loss of personal income would have totaled $400 billion by the end of 2011, she said.
There is even some question of whether a dying Chrysler and GM would have taken Ford Motor Co. with them. Though Ford was the one U.S. automaker not to declare bankruptcy, it uses common suppliers of parts and material 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.
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, but still has 85,500 employees in the United States. Chrysler is part of the Italian automaker Fiat. 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 — though one-time losses reduced the company’s overall picture. Chrysler made nearly half a billion dollars.
So to say taxpayers “lost” $10 billion by making an investment that saved the nation is, essentially, a myth. The U.S. Treasury “lost” another $1.7 billion saving Chrysler 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 what it cost the United States to fight the war in Iraq in 2009, the year of the automotive bailout. It seems clear which was the better investment.
There is another myth about the auto bailout: that the man responsible for it 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 chairman 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.
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.
Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade’s ombudsman, writes on issues and people in Michigan.
Contact him at: firstname.lastname@example.org