Trump Should Make GM Repay Bailout Costs

Trump Should Make GM Repay Bailout Costs

From: November 28, 2018 by Peter Flaherty

In response to General Motors’ intention to close American assembly plants and effectively move manufacturing offshore, President Trump should seek repayment of costs associated with the auto bailout. The direct loss to taxpayers when the Treasury sold the last of its GM shares in 2013 was approximately $10 billion.

There is precedent for requiring direct bailout costs to be paid back. In January 2010, President Obama proposed a new fee on the banks that took TARP funds, even though TARP funds were already in the process of being paid back, and with interest. Obama said, “We want our money back. We want our money back, and we are going to get it.”

In 2013, the National Legal and Policy Center asked then-GM CEO Dan Akerson to repay the $10 billion, prompting his widely publicized refusal during a speech at the National Press Club.

The rationale for the bailout was to save American manufacturing jobs. If GM did not want the government interfering in its business decisions, it should have declined taxpayer funds, like Ford. President Obama claimed the bailout would make money for the taxpayer, which did not happen.

The GM bailout was at its core, about politics. This was best illustrated during the final stretch of the 2012 presidential contest when GM spokesmen openly attacked Mitt Romney for asserting that bailed-out GM and Chrysler would move jobs abroad, which is now happening. Romney was right.

Of course, the $10 billion figure dramatically understates the true bailout cost. There were separate multibillion dollar bailouts of Ally Financial, formerly known as GMAC, and Delphi and other suppliers. There was cash for clunkers, the government guarantee of warrantees, accelerated fleet purchases, etc., etc.

Treasury also allowed a novel application of the tax-loss carry forward provisions of the tax code during the GM bankruptcy, shielding $45 billion in GM profits from taxation.

Worse, the bailout insulated GM from market forces that would have forced the company to operate differently. Instead, there has been no culture change and the old ways persist, enforced by the UAW, which remains one of GM’s largest shareholders. It has been easy to make money during an economic expansion, but GM is not well positioned to endure the inevitable downturn in auto sales.

GM’s share price of $36-$37 is today not much higher than the its 2010 IPO share price of $33. If Mary Barra headed any other major company, she would be long gone. Instead, she has enjoyed political protection.

Finally, GM has cancelled the Chevy Volt. This move is better late than never. The project was a huge waste of taxpayer money from the beginning.