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.