Government Lost Tons of Money in the Auto Bailouts, Despite Benefiting from Blind Luck

As John Lott notes, “Having just $34 billion to show after a $100 billion-plus investment would get a chief executive of any private company fired.” But the Obama administration is boasting about doing just that in the auto bailouts, where the government gave General Motors more than $100 billion in subsidies, handouts, and preferential tax treatment, to keep in business a company currently worth $34 billion. “On Tuesday, the entire company, not just what the government owns, was worth less than $34 billion.” By contrast, “The money the government spent adds up quickly: $50 billion in TARP bailout funds, a special exemption waiving payment of $45.4 billion in taxes on future profits, an exemption for all product liability on cars sold before the bailout, $360 million in stimulus funds, and the $7,500 tax credit for those who buy the Chevy Volt. GM’s share of other programs is harder to quantify but includes, for example, some of the $15.2 billion that went to Cash for Clunkers. Those costs are in addition to the billions taken from GM’s bondholders by the Obama administration.” “The only real winners from the GM bailout were unions, which were protected from pay cuts, from losing their right to overtime pay after less than 40 hours a week, and from cuts to their extremely generous benefits. They faced only minor tweaks in their inefficient union work rules.”

Even this criticism of the bailout is too gentle: the auto bailout would have fared even worse had it not been for huge natural disasters that harmed the foreign competitors of General Motors and thus enabled GM to regain market share despite the fact that the Obama administration left GM’s uncompetitive, inefficient work rules and high labor costs largely intact. General Motors was aided not only by the massive Japanese earthquake and Tsunami that devastated its rivals, like Toyota — as many observers have pointed out — but also from another factor that has often been overlooked: the massive Thai floods in 2011, which inundated and shut down Japanese car-parts factories in Thailand for many months, crippling Japanese automakers’ global supply chains. On December 8, Toyota “cut its profit forecast by more than half after Thailand’s worst floods in almost 70 years disrupted output of Camry and Prius vehicles.”

The World Bank estimated that the floods did $45 billion in damage to the Thai economy, and left half of its factories under water for substantial periods.  By harming Japanese automakers, the Thai floods gave a huge boost to their competitor, General Motors, enabling it to survive despite the Obama administration’s costly coddling of the UAW union in the bailout, which threatens the automaker with future losses in the billions.