Doing the Math on Obama's Detroit Bailout

Typical liberal point of view. 12billion loss that could have created more many more non-union type jobs than what was saved. What a joke... u leftists seem to keep drinking the koolaide while this countrys economy goes down the tank....

if the bush tax plan expires all small businesses like mine will suffer a 4.6 % increase in taxes and this lying jerk obomo knows this nothing but a fake and a fraud

Just give each TAXPAYER in this country a hundred thousand dollars and watch this recession end. Being a taxpayer when can I expect my shareholder check from my investment in this caper.

Is there any math brought in from the 650,000 cars sold due to "Cash for Clunkers". Since the CFC program has ceased, do we suspect any decline in car sales? Almost all of the CFC cars sold were financed. What happens to the economy if many of those go into default, since the average consumer is already deep in the hole?

Sure, GM will now post a profit -- after cutting off at the knees all the bondholders who lost billions when Obama cut a sweet deal for the UAW. What about the cost of this to the market in terms of bondholders being willing to take risks in an industry that might suddenly be nationalized?

THis was a seizure that Hugo Chavez would be proud of. The damage to trust in the market is impossible to calculate.

are those GM numbers including the loan they 'paid back' by getting an even larger loan from TARP or ignoring the TARP loan?
in addition.. is GM being 'in the black' only a result of the incoming loan money or are they actually producing a profit.

I have no doubt Chrysler will return to profitability, Fiat is a very big company who knows what they're doing. they do own Ferrari.

I guess it doesn't count as Bush's bailout, since it started while Obama was only the elect.

The Rep. will think of a way to turn that pos. to a neg..

GM and Chrysler have survived and made the numbers you are reporting during the small recovery we've had in the last few months. Your scenario assumes continued recovery.

What if the economy tanks again as many economists predict? That 80% probably goes bye bye. Then do we bail out again?

There becomes a point when the party is over. The corrupt labor unions have created this hardship for their companies and at some point it has to be dealt with.

Tossing good money after bad can't work forever.

"Based on where GM’s bonds trade, the company is worth about $53 billion right now. That would be an 80% return on the government’s investment..."

Wrong. It would be an 80% return OF the government's investment, not ON the government's investment.

Ford is doing pretty well, and did not take any bailout money or transfer shareholder wealth from legitimate investors to unions.

Throw a bunch of money at failing companies, do some cuts there and voila, you can claim some sort of a miracle. How many tens of billions did it take to give this ridiculous narrative wings?

Clearly this was money well spent that will provide net benefits to taxpayers. But you lose credibility by claiming the current value of the company represents an 80% return on investment. What this valuation means is that if the government sold all its stock today at today's price it would recover 80% of its investment. This is a 20% loss, not an 80% return. Surprised that a writer for a financial publication would have such a poor understanding of the most basic financial concepts.

GM,,,,,,,,I've (all taxpayers) bailed you out twice for your continuing stupidity, in return you drivel heavily overpriced production deplete of progressive creativity and vision. Allegiant stockholders had your back for the life of the company right up until you left them with worthless paper. Every time I see the GM symbol it is a shining hood ornament showcasing the new trend of socialized corporate failure and unaccountability fueled by corporate greed and ignorance.

Sure, Obama deserves a lot of the credit.

But let's not forget..it was GW Bush who signed TARP into law, and, in fact, loaned the auto industry Billions before handing the program off to his successor Obama.

I am a 71 year old Democratic voter. I was a supporter of the auto bailouts simply because I felt the fall out of losing so many joba, and the small companies associated with the American auto industry would have been devestating to our economy. I have to admit that I never expected the return to positive earnings of the 3 comapnies to happen so quickly. Of course, the Republicans will never admit it was successful.

Well, let's don't forget that Chrysler is now owned by Fiat; I have to assume that any future profits will end up overseas. We may get our tax money "back", but, for now, we have yet another piece of America owned by another country...

GM, on the other hand, seems to be doing well. Their new lineup of vehicles are showing that they are hearing what the public is saying. A pickup that out performs the Ford Super Duty and gets better mileage; the Volt; SUV's that get good mileage without sacrificing comfort or carrying capacity...

On another note, Dodge uses the same accelerator parts in some of its vehicles as Toyota, but I never saw a Dodge recall. Why not? Or rather, why did the Feds go after Toyota so strongly, after buying into GM and Chrysler?

I cannot help but feel that the Feds needed to slow Toyota's growth while GM and Chrysler tried to reorganize...

Where would GM and Chrysler be if the safety recalls on Toyota had not shut down sales of their most popular vehicles for a month, and made them spend millions on recalls? How many sales went to GM and Chrysler because of this?

Do we really have a level playing field?

Just thoughts...

Tea party rails against this bailout which rescued one of America's only remaining manufacturing industries. GOP voted against bridge loans for small businesses. Democrats are now the party of fiscal solvency, domestic industrial strength AND small business. What is GOP the party of? hatred, bigotry, pollution, filth and misery. not to mention hypocrisy and homophobia.

Thanks for the info Dan.

With all the anger and drama out there about the bailouts, it's good to just look at some facts.

Good job mr President way to go
GO OBAMA GO
sku you republicans

The President, Vice President and most of their minions like to tell us what a mess the economy would be in if they hadn't pushed for their $8 billion dollar stimulus. Ofcourse they offer no facts, just their opinion. So, wouldn,t it be fair if this author had at least attempted to provide an analysis of where the auto industries would be had they gone through a traditional bankruptcy? And why has this author failed to talk about Ford? Ford took no government "takeover" and has significantly increased it's share of the industry.
Try telling the whole story; it may increase your credibility...may....

yeah, looking back you have to take the deal. In the end even if we don't get paid back in full it was worth it. What is not beneficial is this obsession in pushing the car companies to green energy. Look, back off the battery car and windmills. The bailouts were fine but the government is always in debt so stop trying to run GM. Green energy sounds all cool but it's not going to run the country

Think of this though. If the company did go under, somebody with right mind set could buy the company cheaper and with the right mind set and a new pair of eyes looking at it could run the company right. They would inturn run the company better and build new different cars making somthing new people would want and inturn buy. But oh what about all those lost jobs? well if some one scooped up the company and got it working again they would need people to run the factorys right? who better than the workers that were there in the first place. It wouldnt be as bad as what people think. the bailout was a mistake. Just a way to keep the big boys up top paid. the little guys are still gona lose those jobs one way or the other. At least the other way they will have a better chance of getting the job back.

Your "math" fails to account for the losses suffered by the stockholders and bond holders in the old companies.
They might have a different perspective.

At what point does the government split up GM and probably Chrysler into much smaller business units that are not "too big to fail"? This needs to be done ASAP, not later (or never?)

Oh.

And here I thought GM and Chrysler achieved their lower cost structures via the shafting the retirees, elimination of debt through bankruptcy, lower wages and benefits, and the elimination of bad assets through transfers to Motors Liquidation.

Silly me.

What about the ORIGINAL stock holders that were left holding worthless paper? Screw them right?

How does the return of tax payer's money manifest itself. In other words, how do we get it "back?"

The crux of the matter is, if they owe the money to us they should pay us with interest before they pay out any benifits or bonuses. It would be realy nice for our country to get back to a country of laws and have to abide by them. Contracts in this day and age are just so much malarky. Big buseness just breaks them when ever they want. But we the people are still held responsable.

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You said it's tough to argue the bailout hasn't worked.
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Why don't you understand the word baiout means TAX PAYER'S MONEY !
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every time congress votes on a program the TAX PAYER'S HAVE TO PAY FOR IT...
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I am sick of you idiots thinking that a bailout if free money...
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The cost to the GM bondholders who got screwed by the bailout should be considered with the price. It may not be a significant amount of money that was re-distributed to the unions, but it was probably of consequence to the investors.

"The real test will be if the government breaks even on its investment,"

No, the real test is that car manufacturers are still in business, still hiring and still working to pay back the funds. The investment was made to keep a major contributor to the GNP from certain demise, not as a test to see if we, the people, would break even on the loan. It was a good idea that has proven successful so far and credit should be given [kudos, not a few good loans] where credit is due: President Obama deserves praise and the Republican party of foot draggers who analyze until they paralyze should be seen for what they are; do-nothings that line their own pockets and those of their cronies.

Usually when people tell you to "do the math" they really don't want you to, otherwise, you will find out what a bad deal it is. Furniture "rental" companies tell you to "do the math", for example.

We seem to forget that the real reason for the bailout was to save the tier 1 and tier 2 suppliers to the automotive industry. If GM and Chrysler had folded, their suppliers would have folded. This would have forced Ford out of business as well. If you think the economy is tough now, I would hate to think what it would look like with all of their suppliers going under as well.

It is so nice to hear that someone thinks Obama has done something well. It seems that most of the time no one is pleased with anything he does and personally, I think given the challenges and disasters he has faced, he is doing phenominally well.

No, it wasn't worth it. Of course it looks like it "worked." Throw enough billions of dollars at any company and they'll be able to pay their workers. However, you totally ignore what all those of billions could have been doing, or what GM's and Chrysler's competitors could have done had they folded. Read Bastiat before you start making economic pronouncements about this bailout.

"That would be an 80% return on the government’s investment" Looks like you confuse "return on" with "return of" In fact, at that number, we the people would get 80% of our money back which is a negative 20% return on investment. They have a long way to go to return anything. One would hope that with the interest costs off the P&L, they could post a profit. Finally, why do we think that all the jobs would have disappeared in bankruptcy? The same thing would have happened except that we the people wouldn't have financed the bailout and creditors would have been paid according to the rule of law, not the whims of the white house.

The real test will be when the various new configurations that have been driven by the new management either sell or don't sell. You can throw money at any manufacturer of a product. The question remains will the product sell and at a profit on an on going basis. My guess, based on what I have seen at GM, is that the jury may be out for a very long time.

Whoa, it's not an 80% return on the government's investment. That has a specific meaning. It's actually a -20% return.

the bail out did not save GM, rather, cutting legal obligations with bond holders, severing union obligations etc. kept them afloat tempararily but NOTICE, they have not been able to sell enough cars legit so they bought a sub par finance arm where they can in reality pay people to buy their cars. OH SURE, I SEE SUCCESS ALL OVER THIS

Where can I get a loan that I only have to pay back most of?

I thought this article was "doing the math..."? So the government invests $60 billion (your numbers), has stock worth $53 billion to show for it, and you call that "an 80% return on the government's investment"? I've got some investment deals for you. And you need a better editor.

The government gets a return on its investment in other ways, including payropayroll and income tataxes instead of unemployment eexpenditure and property taxes on large factorfactories that could have been shuttered... not just for the automakerautomakers but all their suppliers and support businesses.

For all his bragging about GM and Chrysler it doesn't change the fact that Obama leads this country closer to total ruin as each day goes by. If we can only hold out until 2012 when Obama, Reid and Pelosi are no longer around, maybe we can save this great nation of ours and justify the lives of our young soldiers that we're losing everyday to a war we shouldn't be fighting. Until then ------------------------

Will see, how much get paid back to the taxpayers. Then Obama comes up with this great car the Volt! Be prepared to lose money again!41,000 for the car & taxes & licensing. Then it only goes 30 miles charged & then you need an adapter for the plug in!!Keep it! How many times are they going to try to sell us wind up cars while they drive their SUV's & jets!! I'll stick with my 30 MPG pontiac I am driving now, and it didn't cost the tax payers billions to buy it!

You set up false choices. You make it an either/or - either the crooked union-payoff bailout that Obama did, or else complete collapse.

But that was never the choice. It could have been done under the rule of law, and the auto industry would have been better off today for it.

Before applauding too much I think George Bush was planning this too. The main criticism is the political favoritism that was done by the Obama administration (ie closing Dealerships not contributing to Obama or DNC campaigns)

Thhis analysis is grossly incomplete because it fails to analyze how the present day would be different if the government had not intervened in the bankruptcy of GM and Crysler. I lost money on GM's old stock, but by trusting in the future of Ford Motor company I made radically more on Ford than I lost on GM.

If GM and Chrysler had gone out of business Ford shares would have risen even farther and Ford would be the company hiring back auto workers.

Sure it's easy for you to say all that when it's taxpayer money - it's not the government's money btw. I don't see how losing 20% of your investment is somehow an 80% ROI as you're asserting. Assuming these market caps is a big SWAG.

Thank you wise masters for taking our money and giving it to the owners, creditors, and employees of GM and Chrysler. Can't wait for the almost payback. You know where to send my check.

Well, on NPR the other day, I heard that a majority of GM products are now or will be manufactured in China. If true, then the American people's bailout of GM is not quite helping the American economy.

Thinking outside the box is not common in Washington, let alone for the GOP. Trust me, even if the government's investment in GM and Chrysler were to generate profits, the GOP will still blame the concept of bailing out Detroit and saving jobs. Unlike the stimulus jobs, these auto workers' jobs are here to stay, but don't tell this to McConnell or the orange peel aka Boenher.

Once again, Obama continues to tout the socializing of the American auto-industry as a success.

http://sunriseinamerica.wordpress.com/

Barrack Obama is in my opinion a total disgrace to the office of the president
of these United States of America. Further, if he had any intestinal fortitude at all he would step down before we are completely ruined finacially, and morally.

One might ask if the money used to "pay back" part of the loans was not just part of the loan.
It is distinctly possible that this is all just a shell game.

A good article that states clear facts and a positive mich needed opinion. Thanks

I'll never buy another GM or Chrysler product after the shameful behaviour of the government in using tax revenues to pay off the UAW and managementand keep them in business for a while longer in spite of their ridiculous behaviour.

Well written!!!! US must keep critical manufacturing units within its shore. It is also a matter of national security. All those critics who questioned the President's decision to bail out the auto industry run for covers when asked about the $180 Billion that was given to AIG.

what about the help given by the europeans,not a lot mentioned
john

My family had a GM Warranty Bond when the Obama Administration told the bondholders to take a hike & changed the bankruptcy laws in favor of the union. Have the auto analysts taken a good look at GM's $41K electric "Lawn mower" - I believe it's called the "VOLT"? Spending toward Prosperity one Bailout at a time

What seems to be the problem for GM not paying back all the loan ? were not going anywhere, are they ? We should get all of it and with %, 12 billion is not a small amount, who reasons this ? I would love a lender to lend me 100 and he feels happy if I pay him only 80.

The new workers are being paid $14 an hour. The union members did not take ANY cuts in pay $28, or benefits which the new workers do not receive.That makes the difference.
357,142.85,the number of hours Slick Willy would have had to work to pay for the wedding.Or,171.70 years

"That would be an 80% return on the government’s investment if GM’s stock were so valued."

ROI? That's nonsense. It's a 20% LOSS on the investment. Look up the definition of ROI.

As for GM planning a stock sale at prices less than Obama paid, that is also dumb. If anyone needs a stock sale, it's the Feds. GM has no business diluting the market.

Even crooks can do math, Mr. Welch.

Question: Where did the government’s "investment capital" come from?
Answer: It was taken at the point of a gun from the taxpayer's pocket...future taxpayer's, that is.

What folks like Mr. Welch and President Obama do not understand (or do and choose to ignore) is the difference between a voluntary commercial transaction and an armed robbery. GM and Chrysler received money not by the former, but by the latter. Government is not a productive enterprise: it does not produce a positive value that can be exchanged for other positive values. Government provides society with only one service: the protection of individual rights. It provides this service by means of its only lawful and moral power: physical force. Once government power is initiated - once its power is used for anything other than the defense of individual rights - it crosses the line between moral and immoral, becoming that which it was created to defend against.
Obama isn't the first to cross the line...and Mr. Welch isn't the first to cheer the act. We're in deep, deep trouble right now and in danger of slipping into a hard fascism...and civil war.

Mercurus

We are investing in America by helping the auto industry and saving jobs that would have no longer existed had we not given Chrysler and GM the help they needed.

I believe the steel industry also benefited in an indirect way.

So I definitely would have taken that deal and, under the same circumstances, would do it again.

Quote:
"The real test will be if the government breaks even on its investment..."

Nope, the real test will be if the economy doesn't re-collapse and GM doesn't go bankrupt anyway for not building cars that the money stricken public is going to need for years to come. Instead of using this good common sense, they went with the hair brained ideas that Obama has about maintaining the false economy that the bubble was built on, except that Old Bama has zero fundamental economic foundation to build his lame plan on.

Except maybe... windmills...

abc,,since GM took all of its profits to build the largest most advance GM plant in the world in CHINA;;and moved most of its other jobs overseas((NAFTA));;thus destroying GM here so as to advance its profits via CHINA NAFTA;;and now gov wants to give up its stake and shareholder power and take a 12 billion loss;;;yahoo;;go corporate America;;and down with the workers/taxpayers!!!not to mention COPORATE GMN laughing all the way to overseas banks ???

I guess they are profitable. If I welched on all of my debts I would could hold myself up as a shining financial example. What about all the debt that wasn't and never will be paid back. What about the violation of bankruptcy laws that allowed the unions to have precedent over suppliers. The real test is whether these company's success is sustanable.

Now if you could tattoo that on some Republican foreheads...

I disagree. That's a lot of cash that could have been used in other ways to create many many more jobs. Bad investment Mr. Obama.

You, and Osama cleverly left out the thousands of creditors, retirees, and others that were shafted, and the billions and billions of dollars in losses to them in the bankruptcy filings of GM and Chrysler. You also did not include the billions in new costs that the unions will receive as a result of their unearned ownership.

And look at the success Hitler had with the Volkswagen...only time will tell if GM and Chrysler will recover with this grand experiment in socialize wheelfare, or whether the current trend is accomplished with financial smoke and mirrors...as to increasing profit by reducing cost, there's a principle that begs application in every governmental entity in the US...

Liquidation does not mean all the jobs would have been lost. That is a false assumption by Obama. LIquidation means the assets are sold. The only assets these companies have are the brands. Chevrolet, Jeep, Buick, et. al. are the brands that would have been sold.

The fact is the free markets purchased low volume niche brands Saab and Volvo. If those low volume niche brands can be sold and those jobs saved, certainly Chevrolet, Buick, Jeep and all the rest would be survived. Obama is wrong. The federal goverment did not need to invest American tax dollars to save these brands. The free market would have saved them if given the opportunity.

Stick with your regular job. This was not Vegas you are talking about. Peoples lives are on the line in this buisness,but its that kind of attitude that has placed this economy where it is today. You have to be kidding.

Yep, such a deal. And to think all it took besides an absurd amount of taxpayer cash was the complete abandonment of our nation's capitalistic ideals and utter capitulation to UAW thuggery.

All to save two dead FAILED automakers. But that $41000 Volt sure looks nice!

Do the math. A $66,000,000,000 gov. investment to save 55,000 jobs. It cost the federal gov. $1,200,000 to save each job... that doesn't sound like a good investment.

The same money could been generous capital to start 55,000 new businesses. Starting a new business is risky and many of these new businesses would have failed. However, I see little logic in investing more money in a business model that is already failing.

Obama can say whatever he wants about the potential lost jobs, but I believe he is wrong. In America, the great thing about the markets is that the consumer will always get what they want. Here is what I mean. If GM was allowed to go into bankrupcy, the assets would have been sold at pennies on the dollar. However, the person/company that bought up the assets would have turned around and started the same thing that GM did, build cars at the same facilites. Would it have created the millions of lost jobs? No. Some would have been laid off, but not that number. Think of Wachovia being taken over by Wells and ask the question how many former Wachovia employees lost their jobs. Not every single employee. If the President had some business knowledge, he would understand this. Businesses come and go. However, someone comes along and takes the market that they used to play in.

I don't like Obama but that doesn't not mean I don't want him to at least try an do positive things for this country.

You also didn't mention the benefits to Ford and the tax revenue from employees and the companies over time...

I can’t agree with more.

This whole article is one big lie. Having perverted the rule of law to pay off its cronies in the UAW, this administration and its useful idiots would like us to believe it saved over a million jobs in the auto industry alone. The fact of the matter is that all of these jobs would not have been lost in bankruptcy. What would have been lost was the featherbedding union contracts and outrageous union work rules that brought the companies to the brink in the first place. There is simply too much capacity in the auto manufacturing sector and not every company is going to survive. If the rule of law had been followed Chrysler might have disappeared. That is the cost of producing a product no one wants to purchase. GM would have emerged as a smaller leaner contract relieve of its onerous union obligations. And the People of the US would be $60B richer.

The government "breaking even" on the investment is certainly NOT the "real test" as you say. Your math absolutely ignores the tax revenues that would have been lost directly or indirectly if the companies had been shut down, as well as the innumerable expenses that the government would have taken on: pensions, additional welfare costs, federal support for insolvent state and local governments, etc.

The price of NOT acting was certainly not zero, so your math is highly suspect.

Even if the bailout ends up costing the government 10 or 20 billion dollars, that has to be judged in light of the financial and social benefits the bailout brought, as well as the strategic value of having this industry here.