“What Trump Doesn’t Know About Detroit” (nytimes) is an op-ed by a government official who got to spend tax dollars on what he considers to be God’s work: bailing out GM and Chrysler. Here’s my comment on the piece:
Mr. Rattner is impressed with what he was able to accomplish at GM for what he says was only $49.5 billion. Maybe something was accomplished. But he doesn’t look at what else could have been done with $49.5 billion. That’s more than double the total amount of venture capital invested in the U.S. in 2009 (source). The relevant question is not “Was it a complete waste of $49.5 billion?” but rather “Was it the best use of taxpayers’ hard-earned $49.5 billion?”
[Separately, you have to be impressed by Ford. What other company could survive its competitors being handed $billions in government cash?]
There is a good lesson in here for young people. It makes sense to work for the biggest best-funded enterprises. People look at the results and seldom ask what was invested to achieve those results. Certainly few people will ask “Did the investment that you made, combined with all of the effort you put in, outperform putting money into an S&P 500 index fund and then sitting on the beach for five years?” If you’re at a startup company with $100,000 in funding it is very unlikely to accomplish something huge, even if the return on the $100,000 invested is at a rate much higher than the return on the S&P. Government also works well. People celebrate Obamacare for increasing the number of people with health insurance; I have never seen a journalist mention the cost and ask “Could something else have been purchased that would have been a better value?”
(I guess the other lesson for young people is that they’ll be paying higher taxes for at least the next 75 years to pay back the money that was borrowed to give to GM and Chrysler. Let’s hope that they love driving those Impalas…)
I just bought a Ford (C-Max Energi [phev] {first Ford for me in over 20 yrs}). I am impressed with it! Glad to know it was, inadvertently, a tip-of-the-hat to Ford’s market and engineering prowess.
Remember too that they screwed over the bondholders who under the law, should have been first in line.
Ford Credit got a $9B line of credit and the DOE loaned them $5B as part of a plan to have them increase fuel efficiency or something.
You’d have to calculate the bailout F received as a function of the difference between what it would have cost them to float loans on the open market vs. the presumably less, or even 0%, loan they got from the government; of course, multiplied by the number of years they had access to the govt loans.
$14B at 4% loan vs $14B at 1% (I don’t know the actual number) is (3% * $14B) $420 million a year, I think?
The auto bailout was actually a pretty good investment. The government borrowed at negative real interest rates, paid $9 billion after loan repayments, and prevented the bankruptcy of a very, very large industry.
Generally a bad idea to intervene, but it’s hard to argue with those results ex post if you are financially literate.
Scott: I think you are providing another perfect example of this kind of thinking. You don’t ask what could have been accomplished if all of this taxpayer cash had been deployed in favor of companies other than GM and Chrysler. Separately, you attribute everything good that occurred to the Great Father in Washington. You don’t ask what would have happened if GM and Chrysler had gone into a normal Chapter 11 procedure. Finally, you say that the government, by favoring these two companies, prevented the bankruptcy of an entire “industry” (i.e., that other companies building cars in the U.S., including Nissan, Toyota, Mercedes, BMW, VW, Ford, Tesla, et al, would have gone bankrupt as well had the taxpayers not bailed out their competition).
Is nine billion the total cost? I seem to remember that the government also took over the pension obligations as well.
History is not science, and it does not allow predictions. Once a decision takes effect, any other alternative is moot, and the only reasonable assessment is an assessment of the outcomes of that decision. Investing that sum in whatever might have brought in more returns, or not. It did not happen and it cannot be tested, hence you are confusing theorising with cold hard facts.
100% agree with Federico. You can’t calculate alternatives that didn’t happen. It’s even hard to calculate what the true total effect is of the alternative that was picked. There’s a long line of dominoes affected by that investment.
I’m not at all. It is a fact that at minimum GM would have gone into bankruptcy without intervention. That would have been disrupted for the American car industry, without question. I’m not saying that the result would have been more than $9b in disruption, but it seems likely. No possible way to know. Based on US government intervention for companies less established companies like Solyndra, it seems unlikely but certainly not impossible there were $9b in better industry investments for the government.
By industry I meant the American industry, providing jobs to Americans (and Mexicans, and other nationalities). The only industry the US government should really be concerned about. I’m not evaluating this from the consumer’s perspective, but it’s easy to anticipate bankruptcy would have reduced competition, therefore reducing choice, and increasing the price for consumers. This was only from a jobs viewpoint, but it is almost inarguable that the average American buying a car has benefited from this.
Scott: “It is a fact that at minimum GM would have gone into bankruptcy without intervention”.
GM actually did go into bankruptcy. See https://en.wikipedia.org/wiki/General_Motors_Chapter_11_reorganization
The question is whether they should have gone into bankruptcy with or without $49.5 billion (or $80 billion, depending on who is counting) in tax dollars.