Obama is in Toledo today to tout the auto bailouts that cost taxpayers billions – especially the Chrysler bailout. But “only 16 percent of executives in the auto industry” think the Chrysler bailout was a good idea, notes the Washington Post’s editorial board. Even the liberal Post questions the wisdom of bailing out GM and Chrysler: the bailout sent a harmful “message” that the automakers are “too big to fail,” a message that may encourage them to be irresponsible in the future. (Taxpayers have now bailed out Chrysler not once but twice. Chrysler is now an appendage of the Italian automaker fiat, not an independent car company, and it has eliminated many jobs since 2009).
The Post’s doubts about the bailout are telling, since The Post is not a haven for free-market enthusiasts. Indeed, The Post has not endorsed a Republican for president since 1952. If even the Post is skeptical of the bailout, it’s because the downside and risks of the auto bailout are too unmistakable to ignore.
More reason to be skeptical about the bailout is provided by recently-released documents revealing the Obama Administration’s complicity in GM’s 2010 deception of the public about its supposed repayment of what it received from taxpayers. My colleague Sam Kazman, an attorney at the Competitive Enterprise Institute (CEI), points out that “the US Treasury Department aided General Motors in its fraudulent claim that it fully repaid its government loans” back in 2010. In reality, as financial reporters wrote at the time, the so-called “repayment” was just a shell-game: “GM repaid its government loan with other government money,” using “other funds held by the Treasury to pay off its original loan.”
Kazman notes that Treasury officials knew weeks in advance that GM would make deceptive claims about the bailout, and tacitly approved of them, as documents recently released in response to CEI’s Freedom of Information Act (FOIA) request demonstrate. As the Washington Examiner’s Conn Carroll points out, the administration “knew GM lied about paying back taxpayers.” And yet, it trumpeted these claims. In May 2010, Treasury Secretary Timothy F. Geithner issued a statement crowing that “GM had repaid in full” what “it owed” to taxpayers.
The Treasury Department waited until after the automakers’ finances had temporarily improved to produce the damaging documents to CEI. (By law, it should have responded to a freedom of information request within 20 days, but it instead delayed for nearly a year before divulging the documents). As Kazman observes, the documents reveal “detailed,” ongoing “cooperation” between the Obama Administration and GM regarding its deceptive advertising campaign in 2010 claiming it had already paid back taxpayers. (The deception continues. As the Examiner’s Conn Carroll notes, the Administration recently deceived the public about whether Chrysler had paid the taxpayers back).
GM’s finances have been temporarily propped up by the Japanese earthquake and tsunami that ravaged Toyota, and by earlier erroneous claims that Toyota’s automobiles were unsafe. Its profits have also been artificially puffed up by massive deferral of billions of dollars in growing UAW pension obligations. Moreover, as Conn Carroll notes, Chrysler’s recent auto bailout payback is in large measure fake.
As Mickey Kaus has noted, “Sales and prices are up recently in part only because competing Japanese car suppliers have been crippled by the earthquake and tsunami. GM’s stock fell today and is still below the initial IPO price.”
Before that, GM’s finances were temporarily buoyed by bad PR regarding Toyota’s alleged safety defects in its cars, which turned out to be largely bogus. (The Toyota crashes turned out to have been caused by driver error, not manufacturing defects).
These things temporarily drove buyers away from Toyota and to GM and Chrysler, artificially pumping up their profits. But massive earthquakes and tsunamis like the one that hit Japan occur there only once or twice a century, and can’t keep GM going in the long run: “Car sales sputtered in May, slumping to levels that were much lower than expected as higher vehicle prices led consumers to put off purchases in the face of a weakening economy. Tightening supplies of vehicles after the Japan earthquake emboldened many companies . . . to raise car and truck prices, a strategy that analysts and investors said had backfired. U.S. automakers” like GM “reported sales on Wednesday that fell short of expectations as the industry experienced its lowest sales rate in eight months.”
GM stock is worth money partly because its government ownership stake due to the bailout allows it to claim many billions in tax savings that it would otherwise have had to forfeit as a result of its bankruptcy. GM is also receiving massive taxpayer subsidies for its Chevy Volt, despite revelations that it lied about that car, which it was trumpeting in a “publicity stunt” to curry favor with politicians crusading against global warming.
As The Washington Post notes, the vast amount of money spent bailing out GM and Chrysler could have been used elsewhere to create jobs. Even “if GM and Chrysler had failed, their profitable parts would, eventually, have been bought up and put to work by others. Over time, U.S.-based plants run by Ford, Honda, BMW and the rest would have captured market share, presumably expanding production and hiring workers in the process. Government dollars spent propping up the two automakers might have created jobs elsewhere.” The Post chides the administration for failing to “press the United Auto Workers, its political ally,” for “labor cost reductions” sufficient to maximize their chances of survival, and for failing to seek deeper reforms and restructuring of the bailed-out automakers.
