President Obama is telling people today that the Auto Bailouts worked. He’s claiming that the auto industries are showing a profit and hiring thousands of new workers, and he’s doing it at a plant where the new electric car, the Chevy Volt, is being assembled. Truly we are lucky to live in such a brave, new world.
At one level, the President’s pronouncement that the bailouts worked is true. GM and Chrysler are still around. Yet you can keep anything going by throwing a huge amount of money at it. And we did all throw a lot of money at these two firms. According to the latest figures, the taxpayer will have lost about $24.3 billion on keeping the firms alive. That’s simply the direct cost, not including the billions spent on “cash for clunkers,” or the $14 billion “loan” GM got in 2008 to retool its plants to build electric cars.
Meanwhile, auto sales remain poor. They may have improved from a year ago, when the financial crisis was really biting, but they’re down considerably on historical levels. GM is happy that it sold just under 200,000 units last month, but two years it sold 266,000 units and three years ago it sold 326,000 (which in turn was down from 413,000 in 2006). GM is still nowhere near the company it was before the government stepped in.
As for that Chevy Volt, as Edward Niedermayer comments in today’s New York Times, it has proven to be a multi-billion dollar lemon, providing the same performance and capacity as a $17,000 economy car for the decidedly non-economy cost of $41,000 (before taxpayer-funded credits, of course).
What would have had to happen for the bailouts to be considered a success? Well, you’d have to have at least the same positive results as bankruptcy would have provided. Those include freedom from the crippling weight of liabilities under former employee pension agreements (nope), a company focused on the core business (GM has started meddling in subprime lending again) and a company supplying cars people want to buy (see above on the Volt).
If the President wanted auto companies selling fewer cars, existing primarily to channel funds to former union workers and to promote over-expensive small but environmentally-conscious vehicles, then yes, the bailouts have been a success. As for providing America with a functioning auto industry, not so much.