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Would no GM bailout have been worse?
A worker assembles General Motors trucks on the assembly line at the GM Flint Assembly plant.
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The federal government is getting out of the car business. Today, the Treasury Department announced that it’s going to sell its stake in General Motors over the next year or so, bringing the $50 billion GM bailout to an end. It looks like the government will take a loss.
GM’s stock closed today at a little more than $27 a share. At that price, the stock would have to more than double for the government to break even on its investment.
“Taxpayers need to assume a loss of $15 to $20 billion,” says Dan Ikenson from the Cato Institute. He was against the bailout.
But Sean McAlinden of the Center for Automotive Research says taxpayers actually should break even. Is he math-challenged? No. He says you have to look beyond the bailout cost and stock price. You have to consider what would have happened without the bailout; how much it would have cost taxpayers if the government did nothing. McAlinden says laid-off GM workers would have been eligible for unemployment checks, and the government would have lost tax revenue.
“People without jobs really don’t pay federal tax," McAlinden says. "Instead, it’s a negative effect.”
Then there’s the trickle-down effect. Without GM, auto parts suppliers would have struggled. Maybe gone under themselves. The carmakers use many of the same suppliers, so assembly lines at Ford would have ground to a halt. Dealerships would have suffered too.
“There would have been economic sinkholes in every community from the dealerships that were no longer selling vehicles,” says Edward Lapham, executive editor of Automotive News.
Of course, the Treasury Department says the GM bailout was worth the cost. But a top Treasury official also says, “the government should not be in the business of owning stakes in private companies for an indefinite period of time.”
Yes, whether it's GM, Fannie Mae, or AIG, Democratic or Republican Administration, opening up the Treasury doors to private industry is a bad idea--more moral hazard; more too big to fail. It can't help but set a precedent to corporations and investors, which ultimately says, "It's okay, taxpayers will be there for you, whatever you decide." The precedent we really need to set is, "Taxpayers might be there for you, but you're going into receivership and will no longer be a privately-owned company. You are now a public company, and our goals are going to change from private profit to public service (such as, electric vehicle manufacturing delivered to consumers at cost to stimulate the economy and address issues of climate change)." We might see more responsible corporate behavior (and higher paying jobs) with wholly public industries in competition with private industry. Corporations wouldn't be so quick to skip off to bankruptcy court with the goal of breaking their union contracts, either. And when health care is included (as in, public option), they would have less reason to.
This story reads as it the projections of what might have happened are a known fact. They are not - there are many possible post-bankruptcy scenarios. GMC, Chevy, Cadillac, etc are powerful brands. It is ridiculous to think that it would all just disappear. As an example, it is likely that a group of investors would buy up the assets and continue the business...without any taxpayer intervention. Much like the recent upheaval at Hostess. I expect Marketplace to do a better job reporting opinions, predictions and guesses as such, rather than presenting them as facts. You have disappointed me.
Chris M,
Raleigh, NC
