As the presidential election nears we continue to hear about what a great job the Obama Administration did “saving” General Motors. The claims are that millions of jobs were saved and Mitt Romney wanted to let Detroit go bankrupt. A review of the facts reveals that the auto bailout process that cost taxpayers billions of dollars is hardly anything to brag about.
When President Obama says he “saved” GM, what he means is that his administration guided a bankruptcy process for the company, funded with taxpayer dollars. The repeated statements by Obama that Romney would have let the company go bankrupt are deceptive. Let’s be clear, GM DID go bankrupt.
The bankruptcy process for GM was mainly funded by American taxpayers. President Obama formed the Auto Task Force and chose an allegedly corrupt hedge fund guy in Steve Rattner to run the show. Bankruptcy experts and Wall Street types were the main advisers instead of auto industry experts. The direction the bankruptcy process was to take became clearer when Rattner was eventually replaced by Ron Bloom, a known union supporter.
The cost to taxpayers to get GM through the bankruptcy process was $50 billion. The government, in return, received a majority ownership of what would become “New” General Motors. Canadian taxpayers put in over $10 billion making the total cash cost over $60 billion. The entire market cap for GM is currently under $40 billion and the American taxpayers’ loss stands at around $15 billion.
Existing GM shareholders, who were the owners of the “Old” General Motors, lost everything and those who lent money to the company, primarily old GM bondholders, lost almost everything. $27 billion of bondholder debt was erased and bondholders were given a very small piece of the new GM pie. The politically-favored UAW fared much better under the Obama plan as its jobs and benefits were preserved and they received the second largest ownership stake in new GM, behind American taxpayers.
We can also look at some facts regarding the number of jobs at GM that may have been saved. It is important to realize that, had GM gone through a bankruptcy process that was not manipulated by the Obama Administration, it is not a given that the company would have ceased to exist. In addition, the implication that GM employed masses of American workers is false. Less than half of GM’s jobs are American. 98,000, to be precise. Somehow this 98,000 figure turned into millions of potential jobs that could have been lost as claims were made that the entire industry would have collapsed if the bankruptcy process was not done exactly as the Obama Administration dictated. Also, non-union jobs were not deemed as important as union jobs when the Task Force insisted that thousands of dealerships be closed.
In addition to the $50 billion in taxpayer cash gifted to GM, a second gift came from the Obama team in the form of tax credits. About $45 billion of tax loss carry-overs were given to GM by Treasury as tax laws were changed to allow GM to benefit from credits they would not have normally received. GM is not expected to pay taxes for years as a result of the Obama Administration wanting to ensure future profitability for a company that would become the centerpiece of the presidential election. Despite the calls for everyone to pay their fair share and Obama’s vilification of oil companies, it turns out that ExxonMobil paid $31 billion in taxes for 2011 while GM actually had a tax benefit of $110 million. The facts, once again, do not seem to match the rhetoric.
Now we approach election time and we are sure to hear more about how great GM is doing and how much money they have on their balance sheet. Here’s a simple question, why did we give so much taxpayer money to GM if they were going to end up with the much-trumpeted amount of $30 billion of cash and marketable securities on their balance sheet? Couldn’t we have saved $10 or $20 billion of taxpayer money and left GM with less cash? Of course, GM would not now be able to brag about how much money they have, nor would they be able to spend as much lobbying the same politicians who ensured their “success.” And let’s not forget all that money needed to promote one of the cornerstones of Obama’s green initiatives, the money-losing Chevy Volt.
Even with all the taxpayers’ help, GM has lost market share in the US and continues to be plagued by UAW legacy costs as well as a European mess that shows no signs of improving. The company was given enough taxpayer money and tax credits to ensure that it will give the appearance of success for the short term. After all, how hard is it for a $40 billion company to look good after receiving over $60 billion in cash and being relieved of tax burdens? And as for Obama taking credit for the “success” of Detroit, what really “saved” the auto industry was the return to more normalized levels of sales as the industry bounced back from temporarily dismal annualized sales. That is why Ford was able to weather the storm with only about an additional $20 billion in cash reserves than GM. The fact that they were able do so and are now about on par with GM (from a standpoint of financial strength) without the Obama team’s help belies the claims that Government is responsible for the recovery of the industry.
The long term prospects for GM are less certain as the Obama-appointed leadership has not proven that it is up to the task of competing in an industry that has little room for missteps. Americans should recall the words of Ron Bloom when they evaluate the true motivations for the auto bailout process. During a celebratory dinner, Bloom best described why the bailouts went down as they did when he boasted that he “did this all for the unions.” And that is nothing to brag about.
Mark Modica is an NLPC Associate Fellow.