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Sunday, Oct 14, 2012 12:30 PM UTC

WHY IT MATTERS: Auto bailout

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Topics: From the Wires,

The issue:

The government bailout of General Motors and Chrysler is one of the most polarizing issues of the presidential campaign. Many Americans wonder why $62 billion in tax dollars went to keeping the two automakers afloat in 2008 and 2009. There’s little doubt the bailout saved the automakers and huge numbers of jobs. But there’s also little chance the government will get all its money back.

Taxpayers are out about $1 billion on the Chrysler bailout. GM stock is selling for less than half the price needed for the government to recover all of its nearly $50 billion investment.

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Where they stand:

President Barack Obama often boasts about the bailout’s success, saying the decision saved about 1 million jobs at automakers, parts companies and other businesses tied to the industry. That estimate is backed by a 2010 study by the Center for Automotive Research, an industry think tank. Obama doesn’t want to sell the government’s remaining 500 million GM shares at a huge loss, but also says he’s not interested in being a long-term investor or running the company.

Republican Mitt Romney has argued that GM and Chrysler should have been sent into bankruptcy protection without government money to keep the companies running. Instead, he said private loans should have paid for the bankruptcies. But because of the financial crisis and because both companies were bleeding cash, there was no private capital available at the time. Romney advocated government-guaranteed private loans for both companies after bankruptcy and also said the government should back their warranties. He would “responsibly sell” the GM shares but has given no time frame.

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Why it matters:

GM and Chrysler are major employers, with most of their operations in the Midwest, including Ohio, a pivotal presidential state. Without the bailout, it’s likely the companies would have been forced into liquidation. Their factories, office buildings and patents would have been sold at auction and their workers would have lost their jobs.

Now, three years after the bailout, both companies are profitable and selling more cars. GM has made almost $14 billion since leaving bankruptcy protection in July 2009. Chrysler has made $440 million since exiting bankruptcy a month before GM. But the automaker is still a private company, and it did not report numbers for the second half of 2009.

Both companies also are hiring when many employers aren’t. GM has added roughly 2,000 U.S. workers since leaving bankruptcy and now employs 79,000 in the U.S. Chrysler has added almost 12,000 workers and now has about 44,000 in the U.S. Since the bailout started in early 2008, under President George W. Bush, the number of jobs in U.S. auto and parts manufacturing has grown by 156,000 to 780,700, according to government statistics. It’s progress for an industry whose workforce is still far below its peak of more than 1.3 million jobs in 2000.

Here’s the bottom line on the federal money: In exchange for a $12.5 billion bailout of Chrysler and its financial arm, the government got $7.1 billion in debt and a 9.9 percent equity stake in Chrysler. Chrysler has repaid the loans and parent company Fiat bought the government stock. The government got back $11.2 billion, but it won’t get any more.

At GM, the government is $27 billion in the hole on a $49.5 billion bailout. Although taxpayers own 26.5 percent of GM stock, the shares are trading for less than half the $53 price needed for the government to recoup all its money.

Tom Krisher

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