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Make Me Smart with Kai and Molly

Estimating costs and benefits of the auto bailout

Adam Allington Dec 30, 2014
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Remember the 2008 auto bailouts?  The Treasury Department is just now closing the books on the controversial chapter by selling its last remaining stake in Ally Financial Inc., formerly known as the auto-lender GMAC.

President Obama has hailed the official end of the auto bailout as a roaring success, claiming that taxpayers recouped the $60 billion loaned out under his administration. The Treasury’s final reckoning, however, shows the bailout cost taxpayers about $9 billion, out of a total investment of around $80 billion between presidents George W. Bush and Obama.

But some say simply looking at money spent vs. money returned is not accurate.

“The cost of doing nothing was not free, and that’s not taken into account in the government’s $9 billion number,” says Kristin Dziczek, a director at the Center for Automotive Research in Ann Arbor, Michigan. Had the government let GM and Chrysler go belly up, she says, taxpayers would be out much more than $9 billion in the form of unemployment payments and decreased tax revenue.

The government-led bankruptcy and bailouts ultimately saved about a million jobs and helped the companies get back on their feet much faster, Dziczek says.

But others say simply labeling the bailout a “success” based on the fact that GM and Chrysler are now turning profits also misses the mark. “If you call a bailout a success, then it becomes a viable option next time, and the debate over whether or not to engage in it will be stunted,” says Dan Ikenson, a trade economist at the Cato Institute, a free-market think tank.

Ikenson says the bailouts effectively robbed Ford, Honda and other automakers of the spoils of capitalist success, and that future bailouts will likely follow.

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