EPI: Auto bailout returns huge taxpayer benefits

The Economic Policy Institute has issued a new report on the Obama administration’s bailout of General Motors and Chrysler in 2009, which extended $50 billion in loans to the two automakers to get them through their managed bankruptcies. The study concludes that taxpayers have gotten and will continue to get enormous benefits from the bailout while getting most of that investment back.

The return on investment for the public from the restructuring of the domestic auto industry was extraordinary. Federal, state, and local governments saved between $10 and $78 for every dollar invested in the auto industry restructuring plan. Federal taxpayers are likely to recoup most or all of their investment in GM, and will enjoy a net gain of at least $61 billion on their $5 billion to 7 billion investment in the auto industry recovery plan. This was a very savvy investment, at a time when failure to intervene would have been catastrophic for the domestic economy.

The General Motors Company completed the largest global initial public stock offering (IPOs) in history this week (November 18). The U.S. government sold nearly half its stock holdings, which puts it well ahead of schedule for exiting from ownership of the company. The proceeds from the stock sales alone (Thursday’s and the expected returns from the ultimate sale of its remaining 500 million shares in the company) will pay back most or all of the U.S. government’s initial $49.5 billion investment in GM (Welch, Spears and Trudell 2010). Overall, the government may lose only $5 billion to $7 billion on the entire recovery plan (Trudell 2010) after GM and Chrysler are privatized again. This report, however, shows that this investment resulted in far larger savings to the economy, and to federal, state, and local budgets. Without the aid of the government-assisted restructuring, one or more of the Big 3 domestic automakers would have collapsed. Between 1.1 and 3.3 million domestic jobs would have been lost, resulting in the loss of 0.5% to 3.0% in GDP in each year between 2009 and 2011, which would have sharply increased federal, state, and local budget revenues. This report shows that the auto recovery plan resulted in net savings to the federal government of between $70 billion to $389 billion in this period, and an additional $24 billion to $126 billion in savings to state and local government. In other words, the $5 billion to $7 billion not recouped via stock sales and loan repayment is offset many times over by the $94 billion to $515 billion in net savings to government.

With the boost in both the amount and price of shares of GM stock sold during yesterday’s IPO, taxpayers will recoup their investment considerably faster than anyone anticipated.