Friday, February 24, 2012

Auto Bailout Reality Check

I do think that Obama was right to “bail out” the auto industry, but that process and its outcome is in need of a little bit of a reality check today, the first being that Obama didn’t even start the process. He came into the middle of it, finishing up a process that was begun by George W. Bush who donated $17 billion of TARP funds to the cause in his last month in office. Obama then followed with $60 billion a few months later.

Note should be made that the bailout did not include Ford Motor Company, which restructured on its own and has become profitable without government intervention.

It also should be pointed out while crowing about GM’s “highest profit in history” that the profit level has been reached by inflation (each unit sells for a far higher price than historically) and cost cutting, not by a true increase in sales, which are still at abysmal levels compared to historical highs.

Let’s also make note that, while GM is adding jobs, the number of people they employ is still vastly smaller than the number they employed before the restructuring, and the average wage is quite a lot smaller, even considering the $7000 profit sharing checks that workers will be receiving this month. The reduction in workforce and wages was part of the bailout, a condition imposed by the government.

Finally, the impact of GM having paid back its loans is lessened a bit by the fact that the government has not yet been able to redeem its GM stock without losing it’s metaphorical shirt. The majority of GM stock is still owned by the taxpayers, and for us to be able to sell it at so much as break even on our investment, that stock would have to more than double in value.

And, of course, Chrysler is now owned by a bunch of Italians.

1 comment:

bruce said...

Didn't you say a few years ago that the auto companies ought to fail?

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