GM: Tens of billions from taxpayers was inevitable

Lisa Lerer and Victoria McGrane have an article at Politico about how the GOP is seeking to turn the GM bankruptcy to their political favor. It reveals some serious logical tension between some of their arguments. For example, they argue on the one hand against the government holding an equity stake in the company after bankruptcy:

In news conference after news conference this week, they slammed the administration for taking a roughly 60 percent stake in GM as part of the bankruptcy proceedings. That decision, they argue, will result in lawmakers getting intimately involved with the daily workings of the troubled company.

“I know that I don’t want Speaker Pelosi and Harry Reid designing the car that I drive, and I don’t think any New Yorker — or any American — does, either,” House Minority Whip Eric Cantor (R-Va.) said in a New York radio interview Thursday. “Washington, the president, Congress, none … has any business running that car company. They’ll run it into the ground.”

President Obama, meanwhile, has pledged to appoint experts who know the industry to the board of directors and then to take a hands-off approach to let them do their job. But at the same time that they’re arguing against the government’s stake in the new company, they’re also arguing that the government has given billions of dollars to GM without much chance of getting that money repaid:

Republicans also argue that the White House has put the taxpayers on the hook for billions of dollars, money that they may never see repaid if the company continues to founder.

Sen. Richard Shelby (R-Ala.) called the bankruptcy a “sad, sad day for the country.”

“I’ll feel better when they pay the taxpayers back and are making money,” he told POLITICO, noting that he expects the government will want to put more money into GM in the future. “That may be a long way away, if ever.”

But this makes it sound as though there was actually a choice that would result in not committing tens of billions of taxpayer funds to GM and their workers. There was no such option. The only alternative to the government providing the financing to get the company through bankruptcy was to put them — both Chrysler and GM — through a bankruptcy liquidation rather than a restructuring.

If that had happened, it would have been the end of the American auto industry. There’s a reason why Ford was continually lobbying for government for its competitors, because it knew that if Chrysler and GM went down, so would nearly all of the auto suppliers upon which they rely as well. If those suppliers go down, so does Ford – goodbye, auto industry.

So would that have avoided having to spend tens of billions of taxpayer dollars? Of course not. First of all, we weren’t going to let the approximately 3 million people* put out of work starve to death. The cost of unemployment payments, food stamps and other forms of welfare would get added to the expenditures on medicaid after those people lost their healthcare. If we conservatively had to spend only $30,000 per person on all of those things, that adds up to $90 billion.

And don’t forget the nearly one million retirees between the three companies. Under law, they would have had to be taken over by the Pension Benefit Guaranty Corporation. As we reported back in April, the pensions of GM and Chrysler alone are underfunded to the tune of $29 billion. Add to that the increase in spending under both Medicaid and Medicare for all of those retirees because they would lose their healthcare.

There simply was not an option on the table that would have prevented the spending of well over $100 billion in government funds given the current situation. Had we let those companies fail instead of supporting them as they restructure, we would likely have been on the hook for even more taxpayer money having to be spent.

And here’s the kicker – the only way of having any chance of getting that money repaid was to give the money as loans to the automakers and take a large equity stake in the companies. With such an equity stake in place as collateral, if Chrysler and GM restructure and return to profitability, the value of the stock will rise dramatically over the next few years, allowing the government to sell off its shares of stock to private investors and pay back the taxpayer investment. If we’d left those companies fail, we would have been forced to spend all of that money without any hope of ever getting it paid back.

Given those two options, rather than weighing the bankruptcy bailout plan against a non-existent option of not spending taxpayer funds, the choice seems rather obvious.

* 3 million may be an underestimate. A report in 2003 concluded that the auto industry was responsible for 13.5 million jobs either directly or indirectly. There are 3.5 million people employed directly by the auto industry, including auto suppliers and related jobs, not to mention all of those employed because of money spent by those employees in other industries.