Work and Money: Did You Know That the GM & Chrysler Bailouts Actually Paid Off?

Written by admin   // November 16, 2010   // 0 Comments

by Jay Anderson, BlackVoices

I could go on an on about how bad a job the Obama Administration does of “selling” its policy decisions, but given how many variations of this theme I’ve already written, it would seem like preaching to the choir by now.

Still, in the wake of the self-described “shellacking” the president and the Democrats took last week, it’s amazing in retrospect just how poorly a job they did of fighting misinformation. Most economists agree that the Recovery And Reinvestment Act (aka: the stimulus package) saved us from a far worse recession. The Troubled Asset Relief Program (Bush passed TARP I, Obama amended it with TARP II) helped prevent the collapse of Wall Street and the banking industry. I’ll reserve judgment on the Patient Protection and Affordable Care Act (derisively referred to as Obamacare, which is just so childish when you think about it), but anything that helps millions of uninsured Americans obtain affordable health care is at the very least well intentioned.

And then there was the auto industry bailout, which likely rescued GM and Chrysler from extinction and spared one million jobs. Also derisively referred to as “Government Motors,” the auto industry bailout was hailed by many critics as an example of the president’s desire to takeover the private sector, stifling free market capitalism and good ole’ American exceptionalism, all in the name of some draconian form of socialism.

Turns out, in retrospect, this bailout wasn’t so bad after all:

A week before its initial public offering, General Motors on Wednesday reported its largest quarterly profit in 11 years, showing that the slimmed-down automaker no longer needs huge sales to generate significant earnings. G.M. said it earned $2 billion in the third quarter, nearly equaling its profit for the first half of 2010. G.M. earned $4.2 billion from January through September.

The company said it expected to report a fourth-quarter profit, at least before accounting for interest and taxes, though “at a significantly lower run rate than each of the first three quarters,” and a full-year profit for the first time since 2004.

G.M.’s public stock offering, expected to occur Nov. 18 and be worth at least $10.6 billion, will allow the federal government to begin recouping the bulk of its $49.5 billion investment in the automaker. The government plans to initially sell about a third of its 61 percent stake in G.M., in the hope that it can divest the remaining portion as the shares’ value increase.

Ultimately, the government needs to sell its shares for an average of about $44 to break even. The Treasury Department already has recovered $7.4 billion from G.M., including interest and dividends, and is slated to get an additional $2.1 billion after the offering from a deal in which G.M. has agreed to repurchase preferred shares held by the Treasury Department.

Chrysler, which filed for bankruptcy protection a month sooner than G.M. and is 8 percent owned by the federal government, said on Monday that it lost $84 million in the third quarter but posted a third consecutive operating profit. Chrysler expects to have a public stock offering in late 2011.

So again, I repeat, one million jobs were saved. Entire related industries were saved, shoot, the entire economy of the midwest was kept afloat. The government didn’t “take over” anything. And at some point in the future, all of the taxpayer money doled out will be returned with interest. That’s not Socialism, that’s sound public policy. Of course, if you can’t explain this in layman’s terms, it just looks like more pointless government spending. Obama and the Democrats failed to sell the sizzle with the steak, underestimating the power of opposition rhetoric, and perhaps overestimating the ability of the American people to cut through all the BS themselves.

President Obama says he “learned his lesson” from last Tuesday’s shellacking and will do a better job of selling the public relations side of public policy in the future. We’ll see.

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