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Good News on GM and the Auto Bailout, but Will Americans Care?

3 years ago
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If this week follows the normal pattern, the public stock offering Thursday by a resurgent General Motors will not be seen as evidence that presidents George W. Bush and Barack Obama made wise decisions to help the tanking auto industry. No, it will probably just remind Americans that the federal government is really, really big these days.
That is, of course, true. In part it's true because of two protracted wars and the money the government has spent to stabilize an economy that two years ago was in a stomach-lurching freefall. It seems true because of new regulations to reorganize the health system and prevent a repeat trip to the edge of the economic abyss. I say "seems" because most of those new regulations are in the planning stages, still to come.
The auto bailout, coming on the heels of the much despised Wall Street bailouts, was apparently more than Americans could bear. Obama dissolved into laughter in a March 2009 interview on CBS' "60 Minutes" when he was told that only 18 percent of Americans wanted the government to help the industry -- while 76 percent said it should not. "The only thing less popular than putting money into banks is putting money into the auto industry," he said. By August 2010 a relatively robust 43 percent in a USA TODAY/Gallup Poll said they approved of "government aid to U.S. automakers that were in danger of going bankrupt." Yet 56 percent still disapproved.
If the facts were better known, would Americans think better of the auto bailout? Unclear, but here they are anyway: The government committed nearly $50 billion to GM (and received a 61 percent ownership stake for U.S. taxpayers); $14 billion to Chrysler (a 10 percent ownership stake), $17 billion to GMAC (the car and home loan arm of GM), and $5 billion to auto parts suppliers. Last month, the Federal Reserve estimated taxpayers would recoup all but $17 billion of that $86 billion.
GM has just reported its third straight profitable quarter, one of many signs that the U.S. auto industry is here to stay. And Americans appear to be growing fonder of U.S. products, or at least feeling more loyal. In a new Rasmussen poll, 41 percent said buying American is their top consideration when making a car purchase. That's up from 32 percent in 2008. Gallup, meanwhile, says 6 percent of Americans will only buy a foreign car -- down from 15 percent in 2008.
The upshot is a healthy industry at a bargain price. Mark Zandi, chief economist at Moody's Analytics and an adviser to Republican presidential nominee John McCain in 2008, said he initially estimated taxpayers could lose up to $60 billion on the auto bailouts. "This is a very significant win for policymakers. They did absolutely the right thing," he said in an interview.
The government plans to sell close to half its shares this week, and might not hold the rest long enough to realize a profit. "We're not patient investors," Zandi said. "The general feeling is we are not very comfortable being major shareholders in GM. We'll sell early and lose money, but a very modest amount -- particularly compared to what it felt like we were going to lose almost two years ago."
Some conservatives are unalterably opposed to bailouts, even if they are temporary and profitable. As senator-elect Pat Toomey of Pennsylvania told me during his campaign, "The goal is not to have taxpayers bail out failing companies in the hopes that maybe they turn around and they can get out with some kind of profit. That's a totally inappropriate role for the government."
Toomey would get no argument on that from Bush ("nobody was more frustrated than I was" that the government had to get involved, he writes in his new book, "Decision Points") or Obama (he has described the government's primary role in GM as "shareholders that are looking to get out").
But what do you do when trusted economic advisers -- including the Treasury secretary and Fed chairman -- are telling you that capitalism hangs in the balance? "I decided that the only way to preserve the free market in the long run was to intervene in the short run," Bush writes of his decision to bail out Wall Street and the car companies.
Both he and Obama were told that letting GM and Chrysler die would mean the end of Ford and the auto parts supply chain, erosion of the manufacturing base, the steep decline of specific regions, and dire systemic impact on the whole country. "My economic advisers had warned me that the immediate bankruptcy of the Big Three could cost more than a million jobs, decrease tax revenues by $150 billion, and set back America's GDP by hundreds of billions of dollars," Bush writes.
What would a million fewer jobs do to the unemployment rate? Add nearly a point, Zandi says. That means that unemployment -- now at 9.6 percent -- would have been well above 10 percent nationally for Obama's first two years. In the industrial heartland -- Michigan, Ohio, Indiana, parts of Kentucky, Wisconsin and Illinois -- we would have been looking at high teens.
Donald Grimes, a senior research associate at the University of Michigan's Institute for Research on Labor, Employment and the Economy, said the auto industry had already lost 870,000 jobs in Michigan since 2000, its previous peak. Without a bailout, he said, it could have easily lost another 100,000 or more. Letting the companies go bankrupt in a deep recession "would have been a symbolic lights-out indication," he told me.
Grimes, who said he did not vote for Obama in 2008, has little sympathy for the companies or the United Auto Workers union. Like the Wall Street banks that received bailouts even though they were at the root of the crisis, they bear plenty of blame for overcompensated workers, crazy work rules, "archaic management" and old thinking, he said. "Everybody knew the day of reckoning was coming," he said. "Even people who worked in the industry referred to themselves as a bunch of dinosaurs."
From a PR standpoint, Grimes added, it's easy to understand why the auto bailout remains unpopular: If you are outside the industry and lose your job, nobody is rushing to bail you out. "This easily could be seen as unfair and probably rightly so," he said. "But you have to be practical. You can't be doctrinaire. We faced a potential calamity. You don't let things collapse."
Both Obama and Bush made short-term political sacrifices to save the economy. In approving $700 billion for Wall Street and auto bailouts, Bush went against his party and his ideology and lost standing with conservatives. Obama, who also followed economists' advice to pass an $814 billion stimulus package, reinforced the image of Democrats as the party of big government and risked the backlash that materialized at the polls this month.
Long-term, however, both presidents probably did their reputations some good. Bush writes that he told aides, "If we're really looking at another Great Depression, you can be damn sure I'm going to be Roosevelt, not Hoover." And if Obama and his party think they fared poorly by losing control of the House this year, imagine what 10.5 percent unemployment and utter Rustbelt devastation might have wrought -- in the election and in the history books.
In the here and now, both men are trying to make a tough sell. The "things could have been worse" pitch is unconvincing when there are five unemployed workers for every job opening. But this week there is actual good news to be sold, if Obama and his team can figure out a way to make the country take notice.

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ncdave4life

There is a lot of good information in this article (though it would have been improved by doing the division: $17 billion divided by 100,000 jobs is still a hefty $170,000 per job). However, the reference to "new regulations to reorganize the health system and prevent a repeat trip to the edge of the economic abyss" is bizarre in the extreme. The purpose of the federal healthcare takeover wasn't to prevent an economic meltdown. There was absolutely no chance that the healthcare industry would suffer a bubble-and-burst cycle like the housing/sub-prime mortgage disaster which triggered this recession. Demand for medical care is very robust, and highly resistant to market cycles. It is, in other words, the kind of industry which promotes economic stability. The federal healthcare takeover might well save money, but only by rationing care and squeezing healthcare providers and creating shortages. It certainly won't do so by improving the efficiency of healthcare delivery. As Sen. Paul Tsongas (D-MA) famously quipped, “If anyone thinks the words ‘government’ and ‘efficiency’ belong in the same sentence, we have counseling available.” The one and only healthcare reform which has a proven track record of improving efficiency and cutting costs while enhancing patient care is the HSA/HDHP system, which was championed by President George W. Bush. But now the highly efficient cash-for-service, HSA-oriented healthcare providers (like my doc, whose web site is www.acchealth.com) stand to be pushed out of business by Obamacare, which will force even routine preventive care to be paid for through inefficient, paperwork-laden, mandatory insurance coverage. Docs who don’t take insurance won’t be able to get paid, and docs who do will be subjected to dictatorial control over every aspect of their practice by the federal government, which will forbid insurance companies from contracting for services from providers who fail to abide by all regulations promulgated by the federal bureaucrats working for the Secretary of Health and Human Services. (Yes, that’s explicitly in the law that the Democrats passed.) The result will eventually be an exodus from the medical profession, and drastically worse healthcare for all Americans. The cost savings from Obamacare, if there are any, will come at the expense of our health, and our children's health. Look north to see what's in store for us. Canadians entrusted their healthcare system to their government just over 40 years ago, and they are paying a heavy price now. Rich Canadians can still get good, timely care (often by traveling to the USA) through private medical brokers like www.timelymedical.ca, but most Canadians endure endless waits (often months or years) for care that Americans take for granted will be immediately available. That's what the Democrats have signed us up for -- without a single Republican Congressman or Senator voting in favor -- and Americans are understandably furious about it. Dave

December 07 2010 at 3:07 AM Report abuse rate up rate down Reply
ettu

Guess it isn't difficult for those in DC to know where to put their money, when they are using taxpayer money to pick the winners and losers. Let us hear from all you "ordinary" Joes who got to get in on this deal. They are touting how much money will be returned to us, but don't count on getting full payment, with interest, and don't expect to have an opportunity to share in any gains that might be made by the favored few, using your money.

November 18 2010 at 10:40 AM Report abuse -1 rate up rate down Reply
dterraman

whats the big deal of nonpayment of $17 billion.....small change

November 17 2010 at 3:58 PM Report abuse -1 rate up rate down Reply
Michael

Few realize how much government policies and union rules contributed to GM's collapse in the first place. Moody's and other bond rating agencies were calling GM debt "junk bonds" while rating the stinking mortgage derivative bundles as investment grade. This not only caused GM's borrowing costs to soar, it suckered GM into putting far too much into subprime loans through its GMAC subsidiaries. GM had its full share of self-caused problems, but the stake through its heart was the policies of the bankster/government alliance. All I have to show for it is $67 a square foot wallpaper: worthless GM stock certificates.

November 17 2010 at 3:47 PM Report abuse +2 rate up rate down Reply
ddoffy

Good news and hopefully all americans will care and have an interest in General Motors succeeding. I feel the company is so important to our country that we must do whatever we can to support them in becoming a great company once again.

November 17 2010 at 1:51 PM Report abuse +4 rate up rate down Reply
pete

I have and will continue to buy Ford products. Just a few years ago Ford stock was getting hammered as they sold off Jag and Volvo while restructuring. Today Ford stock is on the rise. When Ford was restructuring and their stock was getting hammered GM stock was $30- $40 per share but those who continued to hold GM stock have now lost everything.. GM, holding onto dinosaurs like Hummer, did not "see the light" until after it was to late. Ford DID THE RIGHT THING........ restructured ........did not take ONE PENNY in bailout money.......and I will buy their products and stock long before any Government Motors offerings.

November 17 2010 at 1:24 PM Report abuse +19 rate up rate down Reply
John

GM took another 35 billion from us last month, why wasn't that reported here?

November 17 2010 at 1:21 PM Report abuse +7 rate up rate down Reply
2 replies to John's comment
Connie

GM has already paid back all bailout money. Where do you get your information?

November 17 2010 at 7:26 PM Report abuse +3 rate up rate down Reply
mustangclubguy

Connie, if you are referring to a commercial GM ran a few months back, they took TARP money and paid off a TARP loan. That has nothing to do with the 50 Billion they owe and wont pay any interest/taxes on. (if they even pay back the whole 50 Billion!) Question Connie, would you pay off your Mastercard with another Mastercard and call it "paid off?" Thats all GM did, and then they made a commercial claiming they paid off their loan. You bought it! Thats CEO then "retired" and a new one has since taken over. (and they all laughed at the gullible public!) In the meantime all Stockholders and all Bondholders of GM lost everything. Who was the only group protected????

November 17 2010 at 8:13 PM Report abuse -3 rate up rate down Reply
jlopesconcrete

Pebble100, you hit the nail on the head about the elephant in the room. The gorilla in the room is the union is accumulating millions in debt monthly for unfunded pensions. The last bailout didn't go to the stock holders it went to the union. Why should any news about an IPO want to make people invest in a company that is under the same contracts, with the union, that bankrupted it in the first place?

November 17 2010 at 12:46 PM Report abuse +15 rate up rate down Reply
retpo96

Obama administration have their set backs and mistakes but surely indicators are showing growth not fast but a positive direction.It seems the losers of the last presidential election have hindered the progress all along. They use and ignore the Congression Budget numbers only when they need them and have been hindering this Nation foward. We should have had an Option for Public Heath insurance,and have been on our way toward a National Electrical grid for the future, getting off "Oil" as our main dependency of energy, and manufacturing and exporting products for that kind of future. Instead we are stuck arguing petty social issues. The so called "News media" loves to air Drama to get viewers to watch and produce polls of all sorts for Campaign advertising monies.Those so called 24 hour News channels are not helping to get clear facts.They are a threat to our Democracy

November 17 2010 at 12:23 PM Report abuse -10 rate up rate down Reply
pebble100

Ms. Lawrence, you missed the elephant in the livingroom! To quote TangledWeb1027, "GM wasn't going to go under.They were going to have a Chapter 11 Reorganization and they never would have stopped making cars. Instead of following a law that was enacted exactly for this type of situation, Obama broke US law and essentially stole the company from it's stockholders and bondholders. This was a move to bailout the union." I would add that this action undermines the confidence that is needed to invest in our American stock markets.

November 17 2010 at 12:00 PM Report abuse +14 rate up rate down Reply

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