Taxpayers will lose $14 billion on the overall cost of the bailout for American automakers, the White House announced yesterday in a new report. They gave it the best possible spin, however, titling the report “The Resurgence of the American Automotive Industry,” and arguing that the bailouts rescued automakers and thousands of jobs:
The report said that of the $80 billion in bailout money supplied to the auto industry, less than 20%, or $16 billion, ultimately may be lost. That’s down from the 60% loss projected two years ago, the report said. The White House’s top auto and manufacturing adviser, Ron Bloom, later specified the loss at closer to $14 billion.
While “there is no joy” in acknowledging that loss, the bailout succeeded in saving jobs and preventing a broader industry collapse, Mr. Bloom said.
“So while we are obviously extremely conscious of our obligation to get every penny we can for the taxpayer, we’re also not going to apologize for the fact that there are literally hundreds and hundreds of thousands of Americans who are working today” because of the bailouts, he said.
The U.S. could lose more than $10 billion in General Motors Co. alone if the government sold its remaining shares of the auto maker at current share prices.
A “broader industry collapse”? Broader than the failure of GM and Chrysler? The Japanese, Korean, and German automakers didn’t need American tax dollars to rescue them from their own inability to properly manage their businesses. For that matter, neither did Ford. While the other members of the Big Three scooped up taxpayer funds, Ford decided to act independently — and has caught up to GM’s sales for the first time in 80 years. The only failures would have been at GM and Chrysler, and the failure belonged to them alone.
Furthermore, history doesn’t show that these bailouts solve the problem. Thirty years ago, American taxpayers bailed out Chrysler by guaranteeing loans to prop up the automaker, worth $1.5 billion. While Chrysler appeared to have turned a corner then, it didn’t take long for it to make more bad business decisions and start losing money — leading up to another bailout, coupled with a politically-engineered bankruptcy and a sale that ended its status as an American automaker anyway. In fact, the federal government has had to give Fiat billions of dollars in loans to buy Chrysler.
Without a bailout, the American demand for vehicles would still exist. Had the companies suffered the consequences of their poor decision-making, the assets of GM and Chrysler would have been utilized by new owners (as happened with Chrysler even with the bailout), but used by stakeholders with better business sense. That is what happens in competitive markets, especially with established and high-volume demand. Instead, the bailouts allowed the government to not only pick winners (the unions, especially in the bankruptcies), but also keep favored executives in positions despite the failure of the businesses. Those assets may not have remained in Detroit, but the demand for American-made cars would have prompted other entrepreneurs to get their hands on GM and Chrysler assets to produce them.
Of course, the assembly lines keep churning, and people are still working. Is that worth $14 billion of public money?