By on May 1, 2014

File photo of General Motors logo outside its headquarters at the Renaissance Center in Detroit

Detroit Free Press reports the U.S. Treasury lost $11.2 billion in taxpayer money from the rescue of General Motors back in 2008, up from the $10.3 billion estimated after the agency sold its remaining shares back in early December 2013. Part of the final figure came as a write-off of an $826 million “administrative claim,” which was found in a report by the Office of the Special Inspector General for the Troubled Asset Relief Program. The overall figure pales in comparison to the $50.2 billion given by both Bush and Obama administrations between 2008 and 2009 to GM as the automaker struggled through its financial crisis at the onset of the Great Recession.

In other financial news, Automotive News reports the automaker’s new financial arm, GM Financial, has launched a pilot program for prime-risk consumers in preparation for an expansion into the market later this summer. In addition, the auto lender proclaimed last week that it began GM-backed lending in the near-prime market during Q1 2014 alongside its subvented subprime loans. Finally, GM Financial reported a net income of $145 million during the same period — acquiring the majority of former GM lender Ally Financial’s International Operations, as well — with loan and lease originations totally $2.1 billion in the United States and Canada, $4.2 globally.

Another former GM subsidiary is looking into “improper payments” made by employees in China. As Reuters reports, Delphi found a number of these payments by manufacturing facility employees, which could be in violation of the U.S. Foreign Corrupt Practices Act. The supplier is working closely with both the Securities and Exchange Commission and the U.S. Department of Justice, as well as contacted outside counsel to assist. Delphi warned that if what they found was true, the violations “could result in criminal and/or civil liabilities and other forms of penalties or sanctions.”

The Detroit News says GM has begun construction on a new motorsport engine design and production facility set to open in 2016 within its Global Powerplant headquarters in Pontiac, Mich. One hundred engineers and technicians are expected to transfer from their posts in Wixom, Mich. to 138,000-square-foot Performance and Racing Center in Pontiac by the middle of 2015, where they will work alongside the production engine team in sharing technology gathered from the track. The center, part of a $200 million investment into GM’s Pontiac facility, will offer an electric motor lab and a gear center to aid in the development of advanced electric motors and transmissions.

Finally, Forbes posits that GM’s lack of thorough engagement with its customers could once again give some loyalists pause before giving their favorite brand the benefit of a doubt. In one example, the automaker — which already had fewer engaged consumers pre-recall than the likes of Ford, Hyundai and Toyota with their respective recalls — posted the largest post-recall decline while Toyota and Hyundai lost the least after their recalls. The low engagement figures for GM could be a sign of things to come as it works its way through its many issues beyond the original recall in February 2014.

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74 Comments on “U.S. Treasury Loses $11.2 Billion In Accounting Of GM Bailout...”


  • avatar
    IHateCars

    The title of the article makes it sound like they forgot to carry the one.

  • avatar
    Conslaw

    @ IHateCars – nice quip and extra points for being quick.

  • avatar
    Xeranar

    11.2 Billion isn’t a bad deal for the cost of keeping jobs in a time of tough contraction. Rather cheap by comparison since the network of dealers, production, and OEMs certainly can return that in tax receipts in less than a decade. But I’m going to call ‘in before the hate’ on this…

    • 0 avatar
      jpolicke

      Not a bad deal? That’s 9.3 million per job saved.

      • 0 avatar
        FreedMike

        jpolicke, ask yourself:

        How much would we have had to shell out in unemployment benefits for the hourly workers at GM (not to mention their executives and salaried managers, along with their suppliers, and their dealers) who would have pretty much all lost their jobs if these companies had been liquidated?

        And since we’re talking laid off car workers in the Rust Belt, it’d have been safe to say none would have been hopping into new jobs anytime soon, so after the unemployment ran out, a large percentage (pretty much all of them, I’d argue) would have all ended up on welfare, food stamps and Medicaid.

        And since those companies would have been gone, any tax revenue from them would also be gone. Ditto for collecting income tax on the laid off workers as soon as their unemployment ran out. The impact on federal, state and local tax revenues from this would have been substantial.

        Then you have the indirect economic costs of mass unemployment, which all are huge – foreclosures, higher crime rates, health issues, you name it.

        $11 billion was probably cheap in comparison.

        • 0 avatar
          DataSci

          Looking for numbers I found this from an old NBC article on the initial bailouts:

          “the U.S. government avoided the loss of $39.4 billion in increased transfer payments and lost taxes in just two years: 2009-2010″

          For those unfamiliar with the terminology, transfer payments would be things like unemployment and the like. That 39.4 was just two years is the key. What happens when you tack on the extra four years since that time? 11.2 billion looks like a bargain then.

          • 0 avatar
            Pch101

            To look at it another way, US GDP during 2013 was about $17 trillion.

            If the country had suffered a depression, then US GDP could have easily fallen by 25-50% for a period of several years. Literally tens of trillions of GDP lost over time. (And that doesn’t include the trillions in losses that would have been sustained by the rest of the world.)

            The GM bailout cost about 6 hours of current GDP. That was obviously worth it; only an economic illiterate would believe otherwise.

          • 0 avatar
            28-Cars-Later

            How do you take into account inflation between 2008 and now in your GDP figures?

          • 0 avatar
            Pch101

            Those are nominal, not real numbers. However, it doesn’t matter for the purposes of this discussion.

            For one, the inflation rate is low, so it makes little difference. But most importantly, it isn’t possible to lose trillions in GDP and simply make up for it later.

            It’s a deep and permanent loss that inherently includes massive job losses and widespread ruin. We shouldn’t need to have a 25% U3 unemployment rate in order to know that it would be something to avoid.

            That would have also required even more bank bailouts in order to prevent a global collapse of the banking system. TARP was able to pay for itself; had the system been allowed to fail first, then the costs would have increased several times over, and would have not been recouped.

          • 0 avatar
            28-Cars-Later

            Thx for the reply.

          • 0 avatar
            Big Al from Oz

            @Pch101
            You talk as if GDP is the end all, be all of an economy.

            Do you know what makes up GDP?

            It’s government spending, taxation, borrowings, etc.

            So, how much did the US government spend and borrow? It borrowed over $2.4 trillion, its tax is 27% of GDP as well. So about $7 trillion dollars was spent by the US Government.

            How much waste is their in this? Solydra, bailing out the UAW parasites and all of the other waste.

            Oh, did the US have a $17 trillion dollar economy in 2013?

            So, you do believe that civil servants can run a the business of the USA better than business? They must be more efficient.

        • 0 avatar
          wsn

          FreedMike, are you implying that every single one of the GM employees are good for nothing and can’t find another job?

        • 0 avatar
          jpolicke

          So according to you, if GM had gone away the country would have gone into the next Depression. Unemployment! Foreclosures! Crime! Disease! Frogs, locusts, etc!

          Are you suggesting that GM buyers are so devoted they would have said: “If I can’t have a GM car, I’ll walk!!”, or would they have dried their eyes and picked out another brand? Ex-GM suppliers would have made back their business with orders from other makes, unless they were so substandard that no one else would have their product, in which case they deserved to go under. New product might have been a little thin on the ground for a while, which might have been beneficial as dealers cleared out otherwise slow-moving inventory.

          That 11 billion obviously didn’t save the jobs at all the dealers that were closed as a part of the deal. Maybe we should have kicked in another 11 billion to keep them open; they could have used their empty showrooms to sell Solyndra solar panels.

          • 0 avatar
            Pch101

            Smart people saw what happened following the decision to let Lehman fail, and realized that the implications were worse than realized. (Bernanke was obviously caught off guard when he allowed Lehman to tank.)

            As GM was headed for collapse, the world was watching what the US would do. If the US had allowed GM to fail, that would have sent a message to global capital markets that the US was asleep at the wheel and the US economy was going to be allowed to collapse, which would take everyone else down with it.

            That would have meant capital flight and bank runs as everyone scrambled to preserve whatever cash that they could. And when banks fail en masse, depressions are inevitable.

            I realize that conservative populists have difficulty seeing that inaction produces their own unintended consequences. But reality is what it is, even if you refuse to see it.

      • 0 avatar
        Dr. Kenneth Noisewater

        I wonder how much each banker job cost in _their_ bailouts.

        • 0 avatar
          jacob_coulter

          All the major banks repaid their TARP loans.

          http://abcnews.go.com/Business/story?id=7868310

          The deadbeats were the auto companies. handed them to the Unions.

          FWIW, I was against bank bailouts and auto company bailouts.

          • 0 avatar
            FreedMike

            “FWIW, I was against bank bailouts and auto company bailouts.”

            Well, then, I hope you would have enjoyed the Second Great Depression, because that’s where it was going without any bailouts. And the insurance / finance sector bailouts, which dwarfed the money doled out to GM or Chrysler, were all made to companies that aren’t just non-union, but VIRULENTLY anti-union.

            But you keep on kicking that “union bailout” dead horse, if it makes you feel better.

          • 0 avatar
            CJinSD

            FreedMike,

            You may want to read through these comments again, as you’re only serving to emphasize that it was the union bailouts that cost taxpayers money while the ‘anti-union’ financial sector was able to repay its loans with interest. It only goes to show that unions are bad for the country, which I doubt was meant to be your point.

          • 0 avatar
            SayMyName

            “I hope you would have enjoyed the Second Great Depression…”

            Would have? It’s still coming; all the bailouts did was postpone it a bit longer, and I would have greatly preferred to have had that behind us by now. Descending ever-deeper into debt in order to stave off failure has never been a successful long term economic strategy.

            I happen to believe we need a “Second Great Depression.” Like the original, it will ultimately serve to eradicate much of the chaff and waste from our society, resulting in a stronger foundation upon which to rebuild.

          • 0 avatar
            jacob_coulter

            We hear this mantra that TARP “saved the economy” really?

            Unemployment doubled when TARP was passed, and now nearly 6 years later, workforce participation is still lower than it was before, despite all the bailouts, handouts, subsidies, and FED printing.

            All we have to show for is trillions in new debt that someone is going to have to pay.

            Also, if GM and chrysler hadn’t been bailed out, it’s not like Americans would no longer buy cars and just start riding bikes.

          • 0 avatar
            KixStart

            SayMyName: “I happen to believe we need a “Second Great Depression.” Like the original, it will ultimately serve to eradicate much of the chaff and waste from our society, resulting in a stronger foundation upon which to rebuild.”

            People and corporations with cash piles will be able to clean up at the expense of everybody else, buying assets for pennies on the dollar. More money and control into the hands of the wealthy. Truly the Libertarian Paradise… if you’re one of the Koch Brothers or Paris Hilton.

            I wasn’t here for the Great Depression but my father and grandparents remembered it. Their take on it was “it sucked.”

          • 0 avatar
            28-Cars-Later

            “I happen to believe we need a “Second Great Depression.””

            Nothing good could come from such a thing.

          • 0 avatar
            SayMyName

            “I wasn’t here for the Great Depression but my father and grandparents remembered it. Their take on it was “it sucked.”

            Golly gee, and here I thought it was a barrel of laughs…

            Yeah, market corrections tend to be harsh. They’re still a necessity in our economic system, and we’re way overdue for a really significant one. Refusing to take your medicine doesn’t help the underlying illness disappear.

          • 0 avatar
            KixStart

            SayMyName: “Yeah, market corrections tend to be harsh.”

            I see you don’t understand the difference between “market correction” and “economic disaster” and “harsh” and “catastrophic.”

          • 0 avatar
            SayMyName

            And I see you’re unable to read past the first sentence, kix.

            Fine, call it a disaster. It’s still a necessary one.

          • 0 avatar
            KixStart

            SayMyName,

            You remind me of the anti-vaxxers. They think skipping vaccinations isn’t a big deal mostly because they’ve never seen a really good measles outbreak.

            I remember the measles, vividly. I was sick – and I mean S-I-C-K – for a solid week. And my case was not a particularly bad one; it can be fatal. Through personal experience, I understand the risks.

            Still, I didn’t have to live through the Great Depression to understand the gravity of it and so can you. Once you do, you might be a lot less glib about it.

          • 0 avatar

            Wow, such sentiments clearly belong in the ‘careful what you wish for’ category if one chooses to be nice or in the ‘wtf’ category if the choice were to be blunt.

          • 0 avatar
            Pch101

            Arguing that a depression is a tool for economic correction is about as smart as using a guillotine to cure a headache.

          • 0 avatar
            SayMyName

            Wow kix, your staggering inability to grasp my point is rather hilarious.

            Market corrections are very much analogous to medicine; if you don’t take them as prescribed, the body never grows healthier and the illness festering underneath only grows worse. Do you comprehend this?

            In 2008-2009, we had a choice – take our bitter medicine and force some real and meaningful changes, or throw Chinese money at the illness in the hopes it would simply go away. We chose the weaker path, and will now have to pay even harsher consequences down the line.

            Don’t like Depressions? Too bad. Blame Dubya and the Boy King for the inevitable one we’ll need to confront soon, because they refused to swallow some bitter medicine back then.

          • 0 avatar

            Pch, exactly. Amazing really what blind belief in ideology leads to.

          • 0 avatar
            KixStart

            SayMyName: “Wow kix, your staggering inability to grasp my point is rather hilarious.”

            Or, conversely, perhaps it is your point that is hilarious. Or would be, if the situation you describe wouldn’t be so dire.

            Dubya and The Boy King avoided a lot of prompt banktruptcies. This does not mean capital can’t ebb and flow between better and worse ideas. GM may still lose share and shrink (or “rightsize” itself) but it might be a more pleasant experience if they do it without throwing the rest of the economy into turmoil.

            Companies are continually being carved up and merged for “increased economic vitality.” It’s not written anywhere that this must be unnecessarily catastrophic.

          • 0 avatar
            Pch101

            At least we can rest assured that Americans will never use guillotines for anything. (For one thing, they’re French.)

            On the hand, it’s nice to see that we have some people who would gladly take an axe to their wrists in order to fix a ingrown nail. What’s the point of being proportionate when being an extremist will suffice?

          • 0 avatar
            Exfordtech

            SayMyName- Well then I guess ultimately all we need is World War III to eliminate all the useless waste and chaff that has piled up about us. Too many pesky unnecessary people. There’s no human cost in that whatsoever.

          • 0 avatar
            SayMyName

            I’m sure you thought you were being quite clever, Exfordtech… but tell me our country wouldn’t be better off without tens of thousands of bottom feeders that are given almost limitless rein to mooch off the producers.

            You’re right – there’s very little human cost to be considered there, as far as I’m concerned.

        • 0 avatar
          CJinSD

          They paid back TARP, so that’d be zero dollars per job saved. Tricky math.

          • 0 avatar
            Exfordtech

            SayMyName- I see it’s so simple now, let’s just award you the job of selecting who stays and who goes based on your morals and values.
            We could just use excess industrial capacity to make it more efficient. Gas chambers and ovens and such. Sorry I can’t agree with you as I don’t deign myself so wise that I should be allowed to select the winners and losers.

      • 0 avatar
        Superdessucke

        If he has a job at GM, that’s a steal!!

      • 0 avatar
        tylermattikow

        Ok, just make up a number… 9.3 million per job would mean you think it only saved 1200 jobs. If in fact it saved over a million jobs as has been wided cited, the cost would be about $11,000 per job. Even if only 100,000 jobs were saved and each one cost 100k, it wouldn’t be such an awful deal, considering the cost of moving taxpaying workers into tax burdens. The track record of most government corporate welfare job creation schemes has been much more per worker. You can agree or disagree but get your math right.

        • 0 avatar
          wsn

          Again, you are implying that the GM employees are all worthless individuals that no one else would ever hire?

          Plus that GM plants had exactly 0 value that even the Chinese won’t pay a cent for?

          • 0 avatar
            KixStart

            If we waited for the private sector (which also suffered from tight cash) to sort it out, GM would have gone into a prolonged shutdown, payments to their suppliers would have been delayed or lost altogether and their dealers would have had nothing to sell. That’s upstream and downstream bankruptcies, for sure.

            Then the businesses and economic activity that relies on the worker’s wages would have taken hits. More BKs.

            The areas around the former GM plants would have been depressed for years… lengthy stays on unemployment for everybody formerly involved.

            Eventually, economic activity would have picked up but many of the workers would have seen their life savings severely depleted or entirely wiped out, pushing retirement further out for them and the liquidation of their assets would have depressed a variety of prices.

            $11 billion was a bargain.

          • 0 avatar
            bomberpete

            Kixstart has it right. Bailing out GM was the best of a lousy set of options the Govt. had at the time.

    • 0 avatar
      Xeranar

      The fight that ensued I tried to read but it devolved quickly into Andrew Mellon’s Ghost fighting a long lost economic argument with Neoliberal economists and Keynesians oddly on the same side for that split second.

      First off, the Unions were actually some of the largest creditors to GM. If the company has been sold off piecemeal they would have gotten first dibs just as in the Railroad pension cases. So it was a win-win in either way for the unions in a practical sense for their pension obligations. But the reality was shutting down two major auto manufacturers would have been far more than 1200 jobs. Just doing the lazy search GM has 219K employees & Chrysler has 65K. Those totals just at the main businesses amount to 39,500 per employee in taxes. Assuming median income is 50K (which is probably high but keeps it simple) and 15% tax rate for their income to the federal government (which is low…but again, keep it simple) means an annual payment of $7500 to the government. At that rate, roughly 6 years of income tax from individual workers will pay off the debt incurred.

      This whole model ignores the externalities of the auto industry (OEMs, dealers, service centers, etc) that easily amounts to a few million more individuals. So just keeping it simple and avoiding corporate income tax which even adjusting for inflation would still be paid off in a few years basically means the whole argument is moot on whether we got paid back today in selling our shares or paid back tomorrow in taxes that were paid by individuals and corporations that wouldn’t exist otherwise.

  • avatar
    notapreppie

    Just a drop in the bucket compared to the two recent ill-advised wars and jobs saved during a recession.

  • avatar
    Rday

    The only thing GM seems to have learned is that the Government will always be there to cover that asses….and they can keep doing business as usual. GM needs to go away and have all new owners and management take over. Until then they will keep doing business as usual.

  • avatar
    stckshft

    Did a quick search on Auto Trader.. no less than 34 Colbalts listed in 20 mile radius from my zip code. Lots of G6’s too. The exodus has begun. Those customers will not be coming back. Burn me once……

    • 0 avatar
      SayMyName

      Anyone purchasing one of those vehicles should be immediately subjected to a mental competency exam.

      • 0 avatar
        fincar1

        @stckshft, how does that compare with the numbers of Cobalts and G6’s a month ago? That difference is the number that would be of interest.

        @SayMyName, lots of people buy cars knowing there may be a problem in some specific area. A Cobalt might be a good buy right now, and a good many mentally competent people can learn to keep the Cobalt key separate from the big jailer-style key ring. After all, the Oldsmobile Ciera and its other GM cousins seem to be thought of by a lot of people as well-built cars. These people must all have learned to be gentle with the fragile headlight/cruise control/turn signal switch, and not to get all upset when the engine prematurely starts mixing its oil and water.

        • 0 avatar
          stckshft

          Don’t have those numbers. Have a teen that is in need of a car soon. I’m not in a major market (heart of flyover country). I do know Cobalt resale numbers are down $3k compared to similar year, mileage Corolla and Civic out here. Yes, I’m now that parent that is searching the market for a safe, reliable basic transportation on the used market. Yes, I’ve crossed off the offerings from GM on my list. Anyone got a nice Corolla, Civic for sale, Mazda3 perhaps??

      • 0 avatar
        KixStart

        SayMyName: “Anyone purchasing one of those vehicles should be immediately subjected to a mental competency exam.”

        Because why? Because it’s crazy to live within your means? These cars are cheaper than some of the alternatives and if you take the precaution of minimizing the weight on the key and then getting the car repaired when the part is available, then they may serve as basic transportation for people that really can’t afford better.

        I’ve driven some real crapwagons when I needed replacement wheels at a time when I didn’t want to spend a lot of money or take on debt. I might not have liked it but I made a sensible choice.

        • 0 avatar
          mikey

          @KixStart…So very true. Especially in this day and age.

        • 0 avatar
          Wheeljack

          KixStart,

          It’s because all the smart people know that American cars are junk because, well…they’re American…durr.

          Anything made by a foreign company is automatically better because smart folks say so. So, buying a foreign car is an excellent way of proving you’re smart!

    • 0 avatar
      28-Cars-Later

      Doubtful many of those cars are still with their original owners. Remember, both were major fleet fodder at the time.

  • avatar
    RogerB34

    The GM loss is $11.2B REALIZED currently.
    That isn’t the final RECOGNIZED loss.
    As of 12/31/13 Chrysler and GM owed the taxpayers $23.1B.
    Not including an offset of about $2B in interest, dividends etc.

    • 0 avatar
      Pch101

      There’s no loss to GM when Treasury sells its stock at a loss. Surely you must know companies don’t sustain or book a loss whenever shareholders sell their stock for less than what they paid for it.

      • 0 avatar
        wsn

        Please learn to read with context.

        By “GM loss”, he meant tax payer’s loss due to the GM bailout. Not that hard to understand on this thread. Grade 2 English.

        • 0 avatar
          Pch101

          I know that you consistently fail to understand this stuff.

          Still, I would hope that after years of reading this that you would know that GM and Chrysler currently don’t owe the taxpayers anything. We bought stock high and sold it low, and that does not carry with it any obligation of repayment.

          • 0 avatar
            jacob_coulter

            It’s still obviously “lost money” on an investment that the taxpayers were forced to shoulder.

          • 0 avatar
            mik101

            Pch101 you’re an idiot. Most people aren’t forced into buying a companies stock like the tax payers were. That is what makes it a tax payer loss. Anyone with half a clue knew GM stock wasn’t going to appreciate. So it was going to be a loss period. I’m not even American and I’m tired of reading your GM propaganda here.

          • 0 avatar
            Pch101

            “you’re an idiot.”

            Well, thanks, but that sort of comment might carry some weight if it was made by a smart person.

            “Most people aren’t forced into buying a companies stock like the tax payers were”

            As has been discussed numerous times, we all know that there was a loss. But the loss was smaller than what it would have been had the government done nothing. (And at this point, GM owes us zero, in spite of the loss.)

            As I pointed out above, the US economy covered the costs of the GM bailout in a matter of hours. The alternative would have been far worse; doing nothing would not have been free.

            Grownups accept that not all of the choices that we have to make are ideal. There are times when you just have to accept that there is a price to be paid, suck it up, pay it and move on.

          • 0 avatar
            wsn

            Pch101: “I know that you consistently fail to understand this stuff.

            Still, I would hope that after years of reading this that you would know that GM and Chrysler currently don’t owe the taxpayers anything. We bought stock high and sold it low, and that does not carry with it any obligation of repayment.”

            I know that you consistently fail to read properly. (Proof of failing American education.)

            The word “owe” has several meanings. According to dictionary dot com, it could be:

            “1 to be under obligation to pay or repay: to owe money to the bank; to owe the bank interest on a mortgage.”

            This is how you defined it, and it’s OK.

            “2 to be in debt to: He says he doesn’t owe anybody.”

            This is how RogerB34 used it. It’s also a correct use.

  • avatar
    Dave M.

    We’ll wait.

  • avatar
    mikey

    @wsn I believe that” pch101″ was replying to “RogerB34″.

  • avatar
    KixStart

    From the article: “Finally, Forbes posits that GM’s lack of thorough engagement with its customers could once again give some loyalists pause before giving their favorite brand the benefit of a doubt. In one example, the automaker — which already had fewer engaged consumers pre-recall than the likes of Ford, Hyundai and Toyota with their respective recalls — posted the largest post-recall decline while Toyota and Hyundai lost the least after their recalls.”

    Hmmm… April’s out and GM us up 9% while Ford is flat (down in cars, up in trucks). Granted, Toyota is up still further but there’s more going on in the market than reaction to recalls.

  • avatar
    an innocent man

    it’s interesting watching people who pretend to hate Big Corporations try to justify taking money from the poor and middle class to support…Big Corporations.

  • avatar
    el scotto

    Here’s something a lot of people don’t understand. Or will put up a fanboi argument of “Only the Most Manly Golden Chariot Company made each and every part in my Most Manly Chariot!!!” Uh, no. I have seen parts from from one supplier go to many different manufacturers. Could these suppliers have survived a GM shutdown/bankruptcy? With the the constant drive from the manufacturers to make costs lower and lower; I hardly think so.

    • 0 avatar
      wsn

      The total amount of business available to the parts suppliers doesn’t depend on GM’s survival.

      At the worst point, the total US sales was roughly 30% lower than the normal range. It could be that everyone’s down 30%, or that everyone is the same as before, with GM/Chrysler down 100%. Had there been no bailout, it’s likely to be somewhere in between.

  • avatar
    mikey

    Oh, I fully understand what your saying. I spent many years as shipper receiver/dock tech for GM. We used the same suppliers, and trucking as the competition did.

    The same truck and driver, would leave us and, head back to the supplier, to pick a load up for Honda.

  • avatar
    CapVandal

    TARP was designed to roughly break even and it did.
    In 2008-2009, the consensus was that all of the disbursement to the auto industry (about $70 billion) was going to go to zero. As it was, New GM Common Stock didn’t sell for as much as expected, so it cost $10 billion. And, GM wasn’t ‘bailed out’ …. it went bankrupt. The owners/stock holders received $0. The bankruptcy was done on favorable terms for everyone BUT the stock holders. When you have a huge financial crisis and one of your countries largest manufactures is going bankrupt, then how does it NOT make sense to use government funds to minimize the economic volatility?

    The bailout of AIG http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/aig/pages/default.aspx
    ended up with a $22.7 billion profit for the government. Once again, the stock holders/owners were roughly wiped out (lost 92% of their investment).

    The Treasury made http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/bank-investment-programs/Pages/default.aspx at least $28 billion on the bank investment program.

    The single most surprising outcome is that Ally Financial aka GMAC is going to end up in the black. http://www.rawstory.com/rs/2014/04/09/treasury-sets-2-375-billion-stock-ipo-to-finalize-bailout-of-ally-financial/

    So …. how exactly was TARP a cost to the taxpayer? I have to laugh when representatives who live in districts who will never pay close in taxes to what they collect in benefits (think Baltimore City) — have the audacity to use the phrase TAXPAYER’s MONEY. In most parts of the city, you would be hard pressed to find a single taxpayer.

    Since all the bailed out companies wiped out the owners/stock holders, who lost between 90% and 100% of their investments — and the Federal Government made money overall on TARP — what is this about? The bailout wan’t for the owners of the bailed out companies — it was for the remainder of the country that would have suffered in a deflationary spiral (debt deflation) — which we saw between 1929 and 1940.

    And since the Federal Government collects roughly 20% of GDP, including 1/3 of all corporate profits in perpetuity — the Government is the largest ‘stake holder’ in the private sector.

    People are entitled to their own opinions but not their own facts. And the fact is that TARP made money. Banks —
    +28 billion. AIG +22 billion Auto -$10 billion

    The government wasn’t giving money away. They were selling exit visas from hell. And even they couldn’t lose money on that.

    • 0 avatar
      thelaine

      @capvandal
      What an excellent post. Much appreciated. Question: Do you not care that stakeholder UAW got a pension bailout that apparently cost about 10 billion dollars? This is not a sarcastic question. Investors got wiped out. UAW members got paid off, or so it seems to me. Could GM have been saved without any loss to taxpayers? Could the UAW have sacrificed like Delco workers did? Why should the UAW get a taxpayer windfall when the justification for the money is to save the company and the jobs? What are your thoughts on this?

      • 0 avatar
        CapVandal

        @thelaine

        Thanks for the complement.

        I don’t know the details of the Auto Bailout and GM bankruptcy. Here is the way I look at it.
        The $10 billion didn’t directly or even intentionally go to the UAW. During bankruptcy, the UAW pension funds got priority over bond holders. By that I mean, the bondholders walked away with little or nothing and the pension fund came out a lot better off than they would have under more typical bankruptcies. And the pension fund and GM both got Stock in the NEW GM. The Treasury got ended up with both loans from NEW GM and stock from new GM. The loans were paid back. The stock did well after the initial IPO, but then faltered. The Treasury sold reasonably quickly, and took a $10 billion loss. So they took roughly a 20% haircut on the total GM deal.

        The GM/UAW pension fund — the way I see it — got preferential treatment and hence money in the bankruptcy. I don’t worry too much about the fairness of that. A big chunk of the pension problems are post retirement health benefits. I some retirees had to pay their medicare co pays — I wouldn’t lose much sleep. Same for the bondholders.

        In the bigger picture — any investment — is going to work out differently than anticipated. I thought that Ally/GMAC was going to lose $10 billion and GM would break even. Ally annoyed me more because “Government GMAC Finance” constantly ran ads criticizing local banks. And called themselves a new and better bank, etc. I found each and every one of these ads annoying.

        From my perspective, it doesn’t matter which exact deal made money or lost money. AIG could have made $10 billion less and GM could have broken even. Or GM could have broken even and Ally could have lost the $10 billion. Overall, TARP was supposed (many thought best case, at the time) to roughly break even. It made some money. So … for the Taxpayer/Government, TARP was a clear winner. It made money instead of losing money, provided a huge boost to general confidence in the American Economy, and reduced the impact from a financial meltdown.

        It wasn’t strictly fair to all groups. Some groups came out better than others. It seemed reasonably fair … equity owners got wiped out. A lot of bond holders got wiped out. Other bond holders (not GM’s) got made whole. Anyone on the bottom of the food chain that had their job saved got a break — but that is directionally correct. Other people can have different ideas about it, and almost everyone that digs into it would have helped some groups more and other groups less.

        I don’t have the details, timeline, or dollar figures at hand (and don’t want to look it up). But I think this is roughly the way it happened with GM.

        Would anyone with any passion over this issue have really cared that much if GM stock had gone from $30 to $45 instead of down to $25 (or whatever the exact figures are) and the net cost on the GM piece of Auto cost $0?

        If people hate it as a matter of principle, then the exact financial outcome doesn’t matter. If the financial outcome is what matters most, the entire TARP program made money.

        • 0 avatar
          thelaine

          @capvandal
          You have the gift of clarity. I had not seen such a concise summary of the aftermath of TARP, with GM in context. Again, much appreciated.

      • 0 avatar
        KixStart

        thelaine,

        The pension obligations would have been thrown over to the Pension Benefit Guaranty Corp, which is already suffering.

        Pensions could be covered by ownership in New GM or by the PBGC. Ownership in GM gives them incentive to work with management for the greater good. Well, some incentive, anyway.

        I wouldn’t be surprised if there were some over-optimistic assessments of GM’s future potential in the Administration that colored their thinking… Could be they expected the loss to be smaller or zero.

        But the problem with pensions was a stubborn one they couldn’t wish away.

  • avatar
    jimbob457

    The Fed and the government’s management of the 2008-9 auto bankruptcy crisis was pretty good all things considered. Normal Chapter 11 bankruptcy was out of the question. Even if DIP financing had been available (it wasn’t), Chapter 11 would have shut down much of the industry for many months while the lawyers and accountants tried to sort things out.

    Loan covenants and clauses in franchise agreements would have been triggered willy nilly. Suppliers would have gone under. The Great Recession would have morphed into another Great Depression. Even Ford management supported the bailout because a Chapter 11 alternative would have ruined so many of their suppliers.

    Of course the auto crisis arose in the first place from deep flaws in the corporate cultures of GM and Chrysler, e.g. taking private jets to the meetings in Washington??? To what (if any) extent has this been fixed? That would make an interesting thread.


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