General Motors will no longer be “Government Motors.” The Treasury Department on Wednesday announced its intention to liquidate federal holdings in the automobile company over the next 15 months. The final tally will show this policy has been a disaster for taxpayers.
Under the best case scenario, the public will wind up shelling out more than $13 billion by the close of this unfortunate episode. Though President Obama has portrayed the GM bailout as saving Detroit, it was really a reward for the auto unions. It was a celebration of bad management that steamrolled the rights of creditors. It was precisely the sort of thing that ought never happen in an economy based on free exchange.
In the aftermath of the financial meltdown four years ago, Congress created the Troubled Asset Relief Program (TARP) to bail out several of the big-name Wall Street firms. Uncle Sam created a similar program to funnel almost $50 billion to “save” GM. This allowed GM to bypass much of the traditional bankruptcy process, which is designed to permit a struggling business to reorganize in an orderly fashion. Avoiding bankruptcy preserved the lavish union contracts largely responsible for sending the company over the edge in the first place. As part of the bailout deal, Uncle Sam grabbed a 60 percent ownership stake in GM. The power of federal ownership was then used to strong-arm secured creditors into accepting pennies on the dollar for the money they were owed. Established bankruptcy laws would have put the unions at the back of the line, which is something the Obama administration could not allow to happen.
The bailout was as damaging as it was expensive. It tilted the playing field in favor of GM and Chrysler, the other recipient of federal largesse. Ford and the foreign companies that make cars on U.S. soil like Honda and Toyota found themselves at a competitive disadvantage. Mr. Obama’s message to executives was: Make all the bad decisions you want, because the government will pay for your mistakes.
There’s no reason to believe any jobs were actually saved by the bailout. The billions in cash diverted to GM’s coffers could have been left in the hands of the private-sector employees who earned it in the first place. They could have used their money for investment and created jobs. Had GM used the normal bankruptcy process, it would almost certainly have found eager buyers for any part of the company it spun off. As companies like Ford and Toyota have demonstrated, it’s possible to profitably manufacture vehicles in the United States without expensive government intervention.
The end result of this shameful episode was a GM hobbled by political considerations, and an auto industry more beholden than ever to Washington. This is the path to decline, not prosperity.
The Washington Times