What seems to be in the American memory almost daily of recent is “we have to save the American auto industry from collapsing.” Despite the auto industry having been bailed out a number of times in the past.
Recently, President Trump is quoted as saying on twitter “If GM doesn’t want to keep their jobs in the United States, they should pay back the $11.2 billion bailout that was funded by the American taxpayer.”
Stemming from a decision by the automaker to close four plants in the United States. As I and any American tax payer would agree, it was our – the tax payers – money that they received and squandered without remorse while making very bad decisions in the corporate office.
You see. General Motors has had a very tumultuous past of excessive spending – top management corporate jets and other perks worth billions – without gains for that spending. As anybody in any business would be able to tell you first hand, you cannot spend what you do not have or are projected with certainty to make in near future profits.
The U.S. government’s $80.7 billion bailout of the auto industry lasted between December 2008 and December 2014. The U.S. Department of the Treasury used funds from the Troubled Asset Relief Program. In the end, taxpayers lost $10.2 billion.
On November 18, 2008, auto execs flew to Washington to plead for an additional $25 billion in TARP funds. Congress had already agreed to lend $25 billion from a program to develop energy-efficient vehicles.
Congress refused the automakers’ request. Senate Majority Leader Harry Reid said the Big Three should return with “A responsible plan that gives us a realistic chance to get the needed votes.” It didn’t help that the public’s opinion of the automakers three CEOs flew to DC in corporate jets.
Opponents said GM and Chrysler brought their near-bankruptcy on themselves. They didn’t retool for an energy-efficient era. They should have cut production, jobs, and dealerships years earlier. Columnist David Brooks said, “If these companies are not allowed to go bankrupt now, they never will be.”
On December 3, 2008, the automakers returned with a larger request. They needed $34 billion. $18 billion for GM, $7 billion for Chrysler, and $9 billion for Ford. This time, Ford’s CEO drove to DC.
The Big Three automakers asked Congress for help similar to the bank bailout. They warned that General Motors Company and Chrysler LLC faced bankruptcy and the loss of 1 million jobs. The Ford Motor Company didn’t need the funds since it had already cut costs. But it asked to be included so it wouldn’t suffer by competing with companies who already had government subsidies.
The Treasury Department lent money and bought stock ownership in GM and Chrysler. It provided incentives to spur new car purchases. In effect, the government nationalized GM and Chrysler just as it did Fannie Mae, Freddie Mac, and the American International Group.
The auto industry received nearly $81 billion from taxpayer money to be able to remain afloat. The auto industry did not remain competitive in the market, often prioritizing selling inefficient gas-usage vehicles. They also used tactics reminiscent of the housing crash, where they would finance loans with no money down.
Here’s the bailout breakdown. It shows what the government invested. It then shows what Treasury sold the shares for, including what it received in its debt repayment. It then calculates the taxpayer’s profit or loss.
|Company||Invested||Sold For||Profit/Loss||Bailout Ended|
|GM||$51.0 Bil||$39.7 Bil||-$11.3 Bil||Dec 9, 2013|
|GMAC||$17.2 Bil||$19.6 Bil||+$2.4 Bil||Dec 18, 2014|
|Chrysler||$12.5 Bil||$11.2 Bil||-$1.3 Bil||May 11, 2011|
|Total||$80.7 Bil||$70.5 Bil||-$10.2 Bil|
Ford Credit received its bailout from the Term Asset-Backed Securities Loan Facility, not TARP. That was a government program for auto, student, and other consumer loans.
The federal government took over GM and Chrysler in March 2009. It fired GM CEO Rick Wagoner and required Chrysler to merge with Italy’s Fiat S.p.A. The Obama administration used the take-over to set new auto efficiency standards. That improved air quality and forced U.S. automakers to be more competitive against Japanese and German firms.
Chrysler entered bankruptcy on April 30, 2009. GM followed on June 1. By the end of July, they emerged from bankruptcy reorganization. GM became two separate companies and spun off GMAC into Allied Financial. Chrysler became a brand owned mostly by Fiat. The Treasury Department began selling off its ownership of GM in 2010. Chrysler paid off the last of its loans by 2011.
On December 18, 2014, the Treasury Department ended the bailout. That’s when it sold its last remaining shares of Ally Financial, formerly known as General Motors Acceptance Corporation. It had bought them for $17.2 billion to infuse cash into the failing GM subsidiary. The Treasury Department sold the shares for $19.6 billion, making a $2.4 billion profit for taxpayers.
If there had been no bailout, Ford, Toyota, and Honda would have picked up even more market share. Since they had U.S. plants, they would have increased jobs for Americans once the recession was over. The loss of GM would be like the loss of Pan Am, TWA, and other companies that had a strong American heritage but lost their competitiveness. It would have perhaps tugged at the heartstrings of America but not really hurt the economy. As a result, the auto industry bailout was not critical to the U.S. economy, like the rescue of AIG or the banking system.