Three cheers for the bailed out automakers! Today Chrysler joined GM in repaying its government loans early by paying off its $7.6 billion dollar debt. GM has already paid back its $8.1 billion dollar debt. This would seem to be validation that Obama and Congress did the right thing by bailing out the automakers who are now operating on much more stable ground. This would also seem to be another feather in Obama’s cap he can use during the upcoming 2012 election against the Republicans who doubted the wisdom of the move. Finally, big government has done something right everyone can get behind, right? WRONG!
Per usual, this is just smoke and mirrors from the administration, GM and Chrysler. In fact, the only reason these moves were made by the automakers was to get out from underneath the onerous hand of government control that appears to be so beneficial. They can’t get back to business as usual with the Feds monitoring their every move from with-in.
In the case of GM, they simply used an equity line from the TARP program to pay off their bailout. That’s just a shift from one government bailout program to another, however the latter doesn’t contain the strings the specified automaker bailout did. Then there is the separate case of the $50 billion dollar bridge loan based upon stock valuations as well yet to come.
Chrysler didn’t use TARP money, rather they simply swapped out the government loan with private investor equity lines with far preferable terms. They still owe the same amount, only with much less interest in the future.
In short, nobody has paid off anything. It’s merely been shuffling of debt and accounting sleight of hand in order to generate favorable publicity and remove the government from its oversight role. I have no complaint with the latter at all. Government shouldn’t be in this business whatsoever anyway, I just disagree with the sales pitch.
Let’s remember these are failed corporations. They went bankrupt. With capitalism, you always have winners and losers. They lost and should have went away accordingly. Instead, government stepped in with the taxpayers wallet and not their permission and screwed with this process. Arbitrarily deciding who wins and loses is never a good thing. To those who make the claim I originally pointed out that these bailouts were a success, I would ask how so? Does evaporating the wealth of the shareholders and bondholders count as success? How quickly we forget that many people lost their shirts through the Obama brokered bankruptcy deal not to mention all of the dealers forced to close.
The misconception then as it is now was that the industry would have simply went away and we would all be driving foreign-made cars now. That is patently false. It’s never happened before with any other industry. Companies come and go, but the industry as a whole doesn’t just go away due to individual companies failing. GM and Chrysler would have ceased to exist any longer. They would have been reincarnated into new entities utilizing much of the same infrastructure already in place. The difference is where the chips fell and who rose from the ashes.
The report card cannot be written on this entire process until many years down the road. Clearly, we can see who paid the price for this government intervention on the surface. Just ask the investors and dealers and they’ll tell you. What remains to be seen is how the benefactors prevail. The unions were the big winner with the bailouts. Will this translate into new corporate discipline and eliminate the shoddy business practices that led to the bankruptcies to begin with?
Don’t forget the matter of the bailout money itself. I never see this discussed anywhere. Our government is broke. It never had the money to use to bail out the automakers. They had to borrow it and compile more national debt to do so. Did the interest payments from the automakers go to repay the interest accumulated from borrowing the money to establish the bailout funds? The hype is that the taxpayer is being repaid in full on these loans. We’ll just have to wait and see if that is ultimately true or not.
Was this entire process preferable? Should we have let the automakers sell out to a new entity with less of a loss than a bankruptcy write off? Make no mistake, someone would have bought those companies, granted at fire sale prices. Is that better than trashing the investors, the dealers, the suppliers and the yet to be determined taxpayer burden? Will GM and Chrysler make the same mistakes down the road and have to face this scenario again in the future?
Like I said, I think it’s still too early to compile a final report card on the ultimate cost of the bailouts vs. simply letting capitalism take its course. Based upon what has transpired so far, I don’t see how the good has outweighed the bad. That’s without even going into some of the side issues such as the Obama administration sidestepping the rule of law and rewriting the bankruptcy code. It also sets a dangerous precedent for the future. Would you trust your government to do the right thing if it were your industry we were talking about? Would Obama have your back or perhaps the back of his cronies? Thanks, but no thanks.