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.”