Auto Industry Bailout to Cost U.S. Taxpayers $14 Billion

Remember when we were told the bailout of the auto companies was just like a loan and we might even make money on it. Well, the President’s National Economic Council has announced that it will cost $14 billion. That is $14 billion out of the original $80 billion bailout.

Of the companies, Chrysler appears to be paying back most of the loans. GM, on the other hand, has announced that it has repaid a little more than half of the $50 billion it received in federal aid.

It appears that the bailouts will be a focus of the President’s reelection campaign. I am not sure how well this will go over. Not only did the bailouts cost $13 billion but they are often associated with the bailouts of the banks and investors (which are extremely unpopular). When combined with the emphasis on immigration, this appears an extremely high-risk strategy of the White House in the selection of issues. What do you think?

Source: Yahoo

30 thoughts on “Auto Industry Bailout to Cost U.S. Taxpayers $14 Billion”

  1. Look, I’m no historian, but I don’t think that the Communist Party Cultural Revolution offers goals to aspire to. I don’t know exactly what Akerson is trying to say but these are not the comments a CEO of a major US publicly traded manufacturing company should be making. A movement that encouraged seizure of private property, socialism and human rights violations should not be celebrated and glorified by Akerson, particularly given that GM exhibited questionable conduct when it subordinated claims from groups like GM bondholders and accident victims as wealth was redistributed to the politically favored UAW in the GM bankruptcy process. When taxpayers spend billions of dollars to bail out a company that was once an American icon, they deserve better.

  2. Documents just released by the U.S. Treasury Department in response to a Freedom of Information Act request make this clear. They show that General Motors and the Obama Administration coordinated PR strategy regarding GM’s much-criticized ad campaign in 2010, in which the car maker misleadingly claimed to have repaid what it received from taxpayers. In those ads, GM’s CEO at the time, Ed Whitacre, boasted that GM repaid its government bailout loan “in full, with interest, five years ahead of schedule.”


  3. Megan McArdle has done consistently excellent reported pieces on the GM bailout, and her recent evaluation of its net effect on the U.S. Treasury is no exception. Her bottom line is that the deal caused U.S. taxpayers to:

    burn $10-20 billion in order to give the company another shot at life. To put that in perspective, GM had about 75,000 hourly workers before the bankruptcy. We could have given each of them a cool $250,000 and still come out well ahead compared to the ultimate cost of the bailout including the tax breaks

    This is in line with the Obama administration’s $14 billion estimate of the net cost to the Treasury, as reported in the Wall Street Journal. If anything, I think this understates the case on the direct costs, because it does not consider other direct transfers of economic value like the government support for Delphi that inflated the value of the asset that GM sold to create a big chunk of their headline profits this past quarter, green-car development subsidies, and uncompensated interest costs on the government investment.

    But no matter what realistic direct bailout costs you estimate, the objection of bailout defenders is that it is dwarfed by the other receipts or avoided expenditures created by the bailout. According to the Wall Street Journal, this is exactly the defense offered by the Obama administration:

    The White House report said the money invested in GM and Chrysler ultimately saved the government tens of billions of dollars in direct and indirect costs, including the cost of unemployment insurance and lost tax receipts that the government would have incurred had the big Detroit auto makers collapsed.

    There is a lot to this point, but it’s not really so simple. You can’t compare all of these net tax receipts (or more broadly, economic activity) to what would happen in “the world as it is today, minus GM.”

    First, in the event of a bankruptcy, you don’t burn down the factories, erase all the source code on all the hard disks, make it illegal to use the brand name Chevrolet, and execute all of the employees. Others take ownership of the assets, and the employees go on with their lives. Some of these assets will be put to use generating revenues, profits, and taxes, and some of these former employees will get jobs or start businesses, and generate revenues, profits, and taxes. In order to measure the effect of the bailout over, say, five or ten years, you have to compare the actual taxes collected to what would happened over this same period in the counterfactual case where the bankruptcy was allowed to proceed. What owners would have bought the factories and IP assets, and what would they have done with them? What businesses would the former employees have started? Who would have moved to Arizona and retired? What new industry clusters will evolve in Arizona because of this transfer of people?


  4. rcampbell
    1, June 2, 2011 at 9:20 am
    What I’m reading is that $66 billion of the original $80 has been paid back and the gov’t still owns an asset of $14 billion in GM stock. [snip]

    One must also balance the cost of the loans, even if never fully repaid, against the alternative costs to taxpayers of having tens of thousands MORE umemployed people, many more home forecolsures and business failures as more local economies would have collapsed.
    That’s exactly my reaction to the situation.

    I’d really like to see some serious economic analysis of the likely short to long term consequences of the “do nothing” option.

  5. Blouise
    1, June 2, 2011 at 11:02 am
    Immigration is a teabagger issue … it turns ‘em on, lights ‘em up … quite frankly:

    [snip] If the republicans go for an immigration nut it will only be to keep their teabaggers on board.

    Swarthmore mom
    1, June 2, 2011 at 11:05 am
    Blouise, Colorado and New Mexico are important states for the democrats. A strongly xenophobic nominee like Palin could push hispanic turnout.
    This is all “southern strategy” at work. The Republicans still play the anti-black racism angle (from birtherism, to Newsmax’s focus on headlining “urban” crime to Newt’s “food stamp president” comment). But anti-Hispanic racism is the hot new angle. The inherent problem is that successful anti-Hispanic-immigrant (both legal and un-documented) activities will drive up low-end wages. That puts the populist Tea Pariters in direct conflict with the Chamber of Commerce. (While the Chamber folks are working hard to outsource 100% of their US workers, they still need housekeepers and prostitutes/mistresses here in the states, and will be concerned about increasing their labor costs – even if, as in some cases, they have merged those two professions in the name of efficiency.)

  6. Swarthmore mom,

    Thanks for that bit of good news about Feingold, if…


    “President Feingold”… Music to my ears…

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