By on November 19, 2009

Condition 1: taxpayers get the hose (courtesy:dailymail.co.uk)

This according to the National Taxpayer’s Union report “The Auto Bailout: A Taxpayer Quagmire,” authored by Rochester Institute of Technology Professor of Economics, Thomas D. Hopkins. That number includes the $52.9b taxpayer “investment” in General Motors, as well as GM’s portion of the GMAC bailout, which brings GM’s taxpayer tab to over $60b. Chrysler’s GMAC-inclusive bailout bill totals $17.4b, or $7,600 per vehicle, based on estimated 2009/2010 sales. Don’t believe that GM or Chrysler will match their projections over the next twelve months? The NTU estimates that total government support for the auto industry comes out to $800 per taxpaying American family. These numbers do not include the Cash for Clunkers program, likely future bailouts of GMAC (projected at a further $2b), or Department of Energy retooling loans (ATVML). These numbers also do not reflect the very real possibility that GM, Chrysler and GMAC could continue to drain taxpayer money post-2010. “For each year of survival beyond 2010,” the report warns, “the burden per vehicle would decline [Ed: but not disappear] – so long as no additional government funding is provided.”

The report concludes:

Viewed from today’s vantage point, the auto bailout is troublesome in a number of respects. As already noted, the bailout has become a taxpayer quagmire, escape from which will be a major public policy challenge. The recommendations offered by the GAO have much merit, especially those focused on developing an exit plan and on ensuring during the interim that management of the three firms is insulated from political pressures. Sound business practices, not special interest advocacy, should prevail. Both require that a qualified, objective and independent team be given full access to current information about the firms’ operating and financial conditions.

Greater transparency should be achieved so that taxpayers will be better able to understand both issues and outcomes. In particular, taxpayers as part-owners of each of the three firms should be given the same information, on the same timely basis, that public corporations routinely would be required to provide shareholders.

More generally, the bailout has been a sobering experience whose adverse consequences cannot be corrected easily. Auto producers whose products American consumers find most appealing have been notably missing from the roster of bailout recipients. Our subsidies instead have gone to the poor performers, firms whose past management decisions proved faulty. As a result the bailout has created moral hazard problems, inadvertently handicapping the progress of stronger, non-subsidized producers. The problems extend beyond just the auto industry, as favored status for one financial company and its bank necessarily complicates prospects for non-subsidized rivals. The time has come to stop such bailouts, and in an orderly way, to seek at least some recovery for taxpayers.

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27 Comments on “Bailout Watch 573: GM Bailout Cost Taxpayers $12,200 Per Car...”


  • avatar
    wsn

    The calculation is flawed. It assumed that GM would sell 0 car in NA, if there haven’t been a bailout. That is false. Even in a C11, certain parts of GM may still have savage value and production of certain models will continue. Suppose that GM output will be reduced 50% without a bailout as compared to a bailout, then the bailout really has a cost of $24,400 per car (that otherwise won’t be produced).

    • 0 avatar
      wsn

      Let me add that even if GM C7 liquidates all GM plants and 0 GM car is produced in NA, GM (as a global entity) would still be able to sell a large number of cars in NA, likely produced in China.

    • 0 avatar
      Geotpf

      I dunno.  If GM went into Chapter 7, what parts of the company would have had value?  Maybe their full-sized pickup truck line, and probably their Corvette line and plant-but what else?  I would imagine 90% of GM’s sales would go POOF in a Chapter 7 scenerio.   Chapter 7 for Chrysler would be just as bad, if not worse-somebody might buy their minivan line and plants, and maybe their Ram truck line, but probably nothing.

  • avatar
    Canucknucklehead

    I don’t know what other people think but I would have rather had that money go into better schools or health care. Maybe better public transportation, rec centres or bike lanes.

    But I didn’t get a choice in the matter.

    • 0 avatar
      Geotpf

      Letting GM and Chrysler fail probably would have increased unemployment by 2-3% or more nationwide, and by 10-20% or more in certain areas (Michigan, for instance)all at once, at a time where such a shock might have triggered the second Great Depression.  Can’t really blame Obama for trying to save them, or at least to delay their failure for a year or three.

  • avatar
    john.fritz

    I would’ve rather had that money (my share of it) go right back into my damn pocket.
     
    I am so tired of financing and endless parade of special interest boondoggles, be they cars, health car, bike lanes or any other government directed expenditure. I think I can decide a lot better where my money should go than our shit can of a government.

    • 0 avatar
      wsn

      That’s the fundamental difference between capitalism and socialism. In capitalism, you are best at spending your own money. In socialism, the president/chairman knows how to spend your money better than yourself and you have no way to opted out, except maybe a violent revolution.

  • avatar

    I haven’t even read all of the article, but I’m still laughing at the photo quote.

    I’m just glad we’re keeping Opel and the German taxpayers will get their money back. That was part of the bailout plan, right?

  • avatar
    john.fritz

    And Canucknucklehead, my comment wasn’t directed at you or your ideas. I’m just so frustrated with the seemingly endless failures of anything that government gets involved in.

  • avatar
    troonbop

    All this accumulated debt  just to postpone the inevitable for a few years when the failure will be just as painful?

  • avatar
    polarissilver

    It’s still cheaper on a unit basis than the incremental sales cash for clunkers generated.

  • avatar
    carguy

    I am no fan of the auto bailout but how is it news when a right wing-nut think tank comes up with a preposterous number based on completely unrealistic assumptions? Maybe because it makes for a provocative headline? Please tell me that the TTAC editorial staff doesn’t buy this BS.

  • avatar
    TrailerTrash

    Canucknucklehead

    Don’t worry…its my guess you will STILL your education AND healthcare funded.
    You see, this is the same group running this give out program.
    This is NOT a give here rather than there or situation…everything gets funded.
    Whoopie!

  • avatar
    TrailerTrash

    carguy

    Right Wing Nut…?

    Perhaps they should have the same group that just told us the stimulation money madeOR SAVED(?) 700K jobs!
    Now THAT’s  real hard core data we can trust.

    • 0 avatar
      carguy

      TrailerTrash – I totally agree with you. The 700K is misleading at best but the best way to counter rampaging Democrats with a super majority is not with more partisan BS like this.

  • avatar

    carguy: Think of this as another way to look at the number $79.8b. Currently there’s no other analysis that attempts to break down the costs, so it’s worth a look on its uniqueness alone. And you can attack this study around the edges all you like (and there are clearly some weaknesses), but the underlying issue is a single number: $79.8 billion.
    There’s no denying that number… unless you believe, as GM, the White House, and a number of industry observers purport to, that returning $6.75b represents an acceptable return.

    • 0 avatar
      carguy

      Edward – I don’t disagree that the bailout was a bad idea but this analysis is way off from being sober and independent. It is from a anti-tax group with an axe to grind and is as much fiction as the Democratic administrations job creation efforts. What I expected from TTAC was maybe some editorial analysis. Reprinting an item like this without analysis is much like just printing a press release instead of an auto review – and that is something I hope TTAC will never be in the business of doing.

    • 0 avatar
      wsn

      “Anti-tax group with an axe to grind?”
       
      Isn’t that how the US of A gained independence from the British monachy?

    • 0 avatar
      wsn

      Let me add to my previous post.
       
      Maybe stupid people need Obama (Harper in my country) to tell them how to use their money. But I have an IQ of 142. I spend my own money in more productive ways than people who advanced through the social echelon based on no merits but flowery speeches.

  • avatar
    GarbageMotorsCo.

    If GM pays back the loan 100% I’ll eat my hat.

    No wait, I’m not wearing a hat.

    Edit: If GM pays back this loan, I’ll sell everything I own, go by a Brand new Camaro, grow a Mullet and go hide in a trailer park somewhere.

  • avatar
    ChristyGarwood

    Ed, you do agree that $79.8B is the GM, Chrysler, GMAC combined number, right?  And GM’s portion is $60B, right?

    So, GM can pay back $6.75B of the loan and then must come up with $53.25 B, presumably from the sale of stock at some point, (and not necessarily from an IPO, but over some time period) to no longer be on the Ontario and US Fed dole. And GarbageMotorsCo. will finally buy a Camaro. 

    Didn’t GM report that they were sitting on some $42B and change in cash? Yes, some will go to restructuring costs next month, and Delphi.  But GM is adding to that cash pile.  I don’t have a crystal ball, but IMO, GM and it’s employees (yep, I am one) want to repay the full amount of the bailout and are working hard to do just that.   

    And GarbageMotorsCo. please don’t forget to contact me when you do buy that Camaro so I can at least give you the GM Friends discount.

    • 0 avatar

      @ ChristyGarwood (of GM) –
      “…IMO, GM and it’s employees (yep, I am one) want to repay the full amount of the bailout and are working hard to do just that.”

      I want to spend a delightful evening with Kate Beckinsale, but I don’t see that happening, either. I will say that I respect folks like you and Jay sticking up for your companies. Unfortunately, everything I’ve seen indicates Too Little, Too Late should be on GM’s letterhead, and Chrysler is a joke. Ford has a shot at surviving another five years in a recognizable form, but they could still go the way of GM.

      These after-the-fact analyses may stir up the usual suspects, but I don’t think there’s much value beyond continuing the intellectual clubbing of opposing views. The Opel mess shows just how chaotic and disconnected GM management is from their government lenders, and that doesn’t bode well for a timely loan payoff…for the U.S. taxpayer, anyway.

  • avatar
    wsn

    ChristyGarwood, don’t forget about interest.
     
    Prior to bankrupcy, GM bonds was at 35%~70% interest per year (fluctuating fast), reflecting the interest a free economy demand from GM. Let’s make it simple. Say, 33% interest per year, then GM needs to pay back $20B per year, if the government was really an investor.
     
    OK, let’s realize it’s not an investment, but a bailout instead and not get that critical. Say how about a rate of 6.75%? That’s the rate of 30-year fix rate mortgage for people with 20% down payment and a collateral (i.e. burrower that’s way more prudent than GM).
     
    So, $60B x 6.75% = $4.05B
    In other words, GM should pay back at least $4B interest in the first year and that’s already an unbelievably good deal. GM didn’t pay back anything in the past year. So, GM owes us $64B now and will have to pay $4.32B next year just to stop the loan principal from growing.
     
    I am betting on GarbageMotorsCo. winning.
     

  • avatar
    50merc

    I found nothing in that three paragraph Conclusion with which I could disagree. Guess that makes me a right wing nut. So have at with the ad hominem attacks. But I think I’m in pretty good company:
    “Thomas D. Hopkins is Professor of Economics at the Rochester Institute of Technology in Rochester, New York. Hopkins held senior management positions in two White House agencies during the Ford, Carter and Reagan Administrations; in 1979 President Carter appointed him a charter member of the federal government’s Senior Executive Service. In the early 1980s, he served as Deputy Administrator, Office of Information & Regulatory Affairs, in the Office of Management & Budget. He co-authored a 2001 SBA report, “The Impact of Regulatory Costs on Small Firms,” as well as National Research Council reports on marine transportation, the Exxon Valdez oil spill, and trucking/rail/barge transportation. He previously was on the faculty of American University, University of Maryland, and Bowdoin College.”

  • avatar
    PeteMoran

    “Per Car” or “Per Person” analysis is a nonsense. The problem of GM/Chrysler was always macroeconomic. In that sense, the more important question would be; if you had ~$60b what ELSE could you have done with it that might have been structurally more effective.
     
    This process will play out over the next few years and Michigan will still be a wasteland.

  • avatar
    ZoomZoom

    John Fritz:
    I am so tired of financing and endless parade of special interest boondoggles, be they cars, health car, bike lanes or any other government directed expenditure. I think I can decide a lot better where my money should go than our shit can of a government.

    I am beyond tired.  I’m angry.  Taking it from me (or from my “rich” employer, the banker down the street, the corporation on Wall Street, or even sports athletes or Hollywood wonks, blah blah) without permission is THEFT.  What bothers me more is those who justify it…with straight faces! 

    And what bothers me more than that are those who are not angry. 

    As a country, we should be ashamed of ourselves.  We knew who we were voting for, and I don’t just mean for the Executive Branch.  Yet we we’re so quick to give it away…I fear we’re less and less deserving of liberty and freedom.

    And I’ll say it again:  We need term limits.  It’s simply a matter of common sense.  Twenty, thirty, or fifty years in Congress is TOO LONG, and brings into reality an uncaring (they “say” they care) elite political class. 

    If we are to retain any liberty or freedom for our children and grandchildren, we desperately need to deflate that class and its unhealthy influence over our country.

    And soon.

  • avatar
    akitadog

    Bailout Watch 573? That many already?


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