General Motors Will Never Repay Taxpayers

Obama's spin on GM's latest profit report is pure baloney


The Obama administration, and its media backers, have seized upon news that General Motors made a $3.2 billion profit in the first quarter of 2011 as proof positive that its auto bailout is a success. President Obama is so buoyed that he is reportedly planning to make the bailout a major part of his reelection campaign.

But by this standard, Charlie Sheen's comedy tour ought to be declared a smash hit. Sheen's backers will lose relatively less money on him than taxpayers will on the bailout.

No sooner had GM made its announcement than Washington Post columnist E.J. Dionne dashed off a stinging rebuke to naysayers (like me) who had dared doubt the wisdom of the bailout. Likewise, the auto czar Ron Bloom credited the turnaround to the president's "tough love" approach.

No doubt, $3.2 billion is a big number. But an even bigger number is $60 billion. That's what this administration and the last one together sank into GM (not to mention another $20 billion or so they dumped into Chrysler). When President Obama gave GM this money, he insisted that it was not a handout but an "investment" that would cost taxpayers "not a dime."

But if there was ever any doubt that this wasn't going to happen, this earning report dispels it.

For starters, included in the $3.2 billion figure is the net $1.5 billion that the company generated from the one-time sale of Delphi, its auto parts supplier, and Ally Financial, its financial arm. Subtract that, and its performance looks much less impressive, especially compared to its rival Ford that really didn't receive a dime from taxpayers yet made $2.6 billion last quarter—or nearly a billion more than GM.

But cold, hard cash is not the only help that GM got. Usually when companies declare bankruptcy, their tax liabilities increase since they have no more losses to write off. But GM got Uncle Sam's special bankruptcy package that allows it write off up to $45 billion of old losses going forward. That puts its total bailout at up to $75 billion*. Even that's not all. The Treasury gave GM $10 billion of the $60 billion as a loan; the rest was through the purchase of equity. (It has more or less paid back the loan.)

The equity means two things: One, GM has zero interest payments, something that gives it a distinct advantage over competitors. Ford, by contrast, had to pay $251 million in debt-service costs. Despite this, GM's real per vehicle margin was over $1,000 less than Ford's, thanks to the heavy incentives it was forced to give buyers. (If the administration can call this success, can it please call me the next American Idol?)

And two, taxpayers have no guaranteed return as they would have with a loan. Therefore, market valuation of GM's stock will determine what they will recover. They got back $20 billion when the Treasury sold half of its equity when GM floated its first post-bankruptcy IPO in December. But that still leaves a $30 billion shortfall (excluding the $45 billion tax break).  To get this back, the federal government would have to sell its remaining 365 million shares—about 26.5 percent of company equity—for about $55 per share. But after GM posted its latest earnings report, its stock price dropped to $31, a few dollars below even its IPO price of $33.

Nor are things going to look up for taxpayers going forward. One reason GM's first-quarter profits were even as high as they were was that low gas prices boosted the sale of SUVs and trucks, GM's (as Ford's) most profitable products. But with gas prices rising, customer demand is expected to shift to smaller, more fuel-efficient cars. GM's small cars such as Chevy Cruz and Malibu have certainly done well in recent months, but their profit margins are small because GM's labor costs are still too high.

GM slashed these costs during bankruptcy to $58 per hour, comparable to Toyota's $56. But the problem, notes Henry Payne, editor of Michigan View, is that Toyota is not the industry cost leader anymore; smaller Asian transplants such as Hyundai and Kia with $40-per-hour labor costs are. To compete with them, GM needs to extract more concessions from its labor unions during contract negotiations this September. But United Auto Workers President Bob King has declared that workers have already sacrificed enough to keep GM solvent and now expect givebacks.

Given such realities, Bloomberg's survey of 21 auto analysts put the average projected price for GM at $42.85 per share a year from now. This means that, outside of miracle, taxpayers will lose anywhere from $13 to $19 billion on their principal and another $15 billion on taxes for a grand total of up to $28 to $34 billion* in losses. And that's just for GM. Chrysler is whole different—and equally sordid—story. Even Treasury Secretary Timothy Geithner acknowledged last month: "We're going to lose money in the auto industry."

Let's hope that next time this administration decides to rescue someone, it's Charlie Sheen. He might be less high maintenance than GM for taxpayers.

Reason Foundation Senior Analyst Shikha Dalmia is a columnist at The Daily, America's first iPad newspaper, where this column originally appeared.

*Editor's Note: This article originally cited a misreported figure on GM's total savings in future taxes. The correct figure is approximately $15 billion.

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  1. I don’t think the bailout is at all popular. I’m beginning to worry about the president. Do you think he got brain damage when he accepted that Peace Prize? Maybe some Viking knocked him on the head or something.

    1. I’m beginning to worry about the president.

      Probably all the fundraising he’s doing. There’s no way I’d give a nickel to that Kenyan.

    2. OK, OK, I get it… but I did kill bin Laden, didn’t I? That’s pretty cool, right? Isn’t that worth a vote or two?

      1. That was definitely a Gusty Call?.

      2. I believe the NAVY seals killed Bin Laden. All you did, Obama, was give the go ahead to the military and CIA to do a job that needed your approval. Even a retarded president would have given the go-ahead.

        1. Even Carter would have given the go-ahead. And he might not rise to the level of “a retarded president”.

          1. Half retarded…Carter is only half retarded.

            1. He was retarded, but only a half-president.

    3. Those medals are heavier than they look. The weight is probably cutting off bloodflow to his brain.

      1. Brain????? LOL

  2. He’s doing another European victory lap in his clown car, right now. Maybe he’ll find a nice place in the south of France and decide to stay there.

    And, yeah, every fucking paperboy, unlike our Constitutional-Scholar-in-Chief, knows the money you get on “collection day” isn’t free and clear profit.

    1. Two dollars!

      1. “My little brother got his arm stuck in the microwave. So my mom had to take him to the hospital. My grandma dropped acid this morning, and she freaked out. She hijacked a busload of penguins. So it’s sort of a family crisis. Bye! “

        1. Two dollars!

          1. “Greendale is a bodaciously small town, Lane. A fly speck on the map – a rest stop on the way to the ski slope. I can’t even get real drugs here!”

            1. Lane, this is a bit awkward. But I’ve heard a few things, and I was wondering if you would mind if I took out Beth?

              1. I think it’s time for a montage.

                1. Hang on, lemme queue up To The Limit….ok, ready.

                2. Even Rocky had a montage.

                  1. Real Genius has three montages. Which might be the record for non-montage-spoofing films.

                    1. I’d kill someone for a new laser-themed coming-of-age teen-comedy.

                    2. I think we effectively killed that genre.

                    3. I can remember the one where Val Kilmer finally gets serious and builds the death laser… It’s been a while, care to enlighten me on the other two?

                    4. jee Ricky, I’m sorry your mom blew up.

  3. The bailout would have been a bad idea even if–hell, especially if–it had worked as well as the Obama fellaters claim it has. See “moral hazard”.

    1. Luke: Are there any volcanoes in Hazzard County?
      Bo: Well, not since Mr. Puckett blew his stack when I brought his daughter home two days late from the hayride.

  4. Another reason GM won’t ever pay back the loans: No one wants to buy their shitty fucking cars. GM cars fucking suck ass:…..d-cars.htm

    16 of the 28 “worst of the worst” are made by GM. Yo, GM workers, fuck your shitty cars and your shitty entitlement attitude.

  5. Reason: your spam filters sucks almost as bad as GM cars.

    I was gonna post an URL from consumer reports that whoses that 16 of the 28 “worst of the Worst” used cars are made by GM. That is another reason why they won’t ever repay the loan, no one wants buy their shitty cars.

    1. These models, listed alphabetically, have multiple years of reliability that’s much worse than average among 2001 to 2010 models.
      Audi A6 (2.7T, 3.0T) GMC Acadia (AWD)
      BMW 535i (AWD)
      GMC Canyon (4WD)
      BMW X5
      GMC S-15 Sonoma (4WD)
      Cadillac SRX (AWD)
      GMC Safari
      Chevrolet Astro
      Hummer H3
      Chevrolet Aveo
      Jaguar S-Type, XF
      Chevrolet Blazer
      Kia Sedona
      Chevrolet Colorado (4WD) Mercedes-Benz R-Class
      Chevrolet Impala (V8)
      Mini Cooper Convertible
      Chevrolet S-10 Pickup (4WD) Pontiac G6 Coupe & Convertible
      Chevrolet Uplander
      Saturn Outlook (FWD)
      Chrysler PT Cruiser (turbo) Saturn Relay
      Chrysler Town & Country Volkswagen New Beetle Convertible
      Dodge Caravan
      Volkswagen Passat (V6, FWD)
      Dodge Grand Caravan

      1. What’s this list exactly? If it’s about shitty vehicles, I don’t understand why there is not a single Ford on there. I do not know of a single car they make that is not a piece of crap.

        1. I’ve had two Ford Rangers, a Ford Escape, and am now driving a Ford Fusion.

          Between the first three vehicles I put about 250K miles on them combined. I’ve had absolutely zero issues with those three besides normal wear and tear. No major mechanical or electrical issues with any of them.

          I’m up to 30K in my Fusion and it still looks and runs like it did when it came off the lot.

          Anecdotal to be sure, but I have no reason to buy a another car when Ford has never done me wrong and their prices aren’t insane. I got the Fusion for under $20K fully loaded and I love it.

          1. I saw a great bumper sticker on a Buick the other day:

            GM == Government Motors; My next car is going to be a Ford

          2. American car owners are so funny. I’ve got about 250K on my Toyota pickup. Does that make it three times better than a Ford?

            1. No, It makes you three times more stupid for driving a toyota in the first place.

            2. The cars I mentioned above were leases, so I never got to extend the mileage. I get ridiculous deals for the leases too, which is why I did them. Both Rangers cost me less than $100 a month for a brand new truck with a $1500 down. The Escape was a bit more but not much. If you add up what I paid in lease cost for three new cars that I drove for 3-4 years you would barely reach the purchase price of a new one. Maybe not the smartest use of my finances but I have spent exactly ZERO $’s on non-regular car maintenance in ten years.

              I am buying the Fusion though, no lease. I love it. Great gas mileage for a sedan, roomy, big trunk, a joy to drive, the SYNC system is fun as hell, and it looks pretty damn tight.

              Ford learned their lesson from the Japanese in the 80’s and 90’s and started making cars people actually wanted to buy.

              GM has a learning problem, and it will persist until the go out of business.

        2. Ford used to put out a lot of shit (see WindStar), but they’ve gotten a lot better hence the stronger sales. I had a Ford AeroStar a while ago and it was pretty good.

        3. I have a 2005 Mustang GT (first year of the retro look).

          Zero problems. I never owned a smoother running car.

        4. Need to upgrade my salary prior to issuance of my monocle, but I rock a 96 Ford Taurus with 170k miles on it. No major problems other than an inability to pass a genuine smog in California (found a guy that has a great get around on that). The dashboard lights up like a Christmas tree and the axle has an awful sound right now, but the damn thing still runs.

          1. My parents bought a Ford Taurus in the late 80s. Horrible, horrible, horrible car. Worst car ever.

      2. Honey! Honey! Now we HAVE to get that Porsche I want! It’s one of the only cars on the market that isn’t a piece of shit!

  6. It worked so well for GM, we should bail out Centex.

    1. We should bail out the U.S.S.R.

      1. Multiplier effect!

        1. The multiplier will be… Tap tap tap…

          52! My calculations say, 52!

          That’s my story and I’m sticking to it. As long as there’s a Democrat in office.

      2. There’s no such thing.

  7. Hey, what’s everyone worried about? GM has the Volt! It will sell like crazy! As Bailey explained yesterday Seth Fletcher says “The car, in short, is fantastic.” People will be lining up in droves and GM will rebound in no time!

    Seriously though, two of the Chevy’s I’ve had in my life were rife with electrical problems, among the several other things wrong with their shitty cars. So now you expect me to believe that GM can make an ELECTRIC car that’s worth a shit?

    The market has spoken GM. Your cars suck, and no one wants a $40,000 glorified go cart that may or may not spontaneously catch on fire due to electrical issues.

    The other thing I want to know is how much tax payer money is being used to subsidize the purchase price of the Volt, and shouldn’t that be included in the bailout tab that we taxpayers are currently are owed by GM?

    1. shouldn’t that be included in the bailout tab that we taxpayers are currently are owed by GM?

      That wouldn’t be in-line with Official Accounting Practices.

    2. The Chevy Volt will be just fine, thank you very much. Just don’t touch it and the ground at the same time…and for god’s sake don’t do so in the rain.

    3. The max federal tax write-off for a Volt is $7500. California adds in its own subsidy on top of that. I think some counties in California add in a bit more yet. What I’m wondering is what will happen to the Volt as soon as the federal tax write-offs are withdrawn. If at that time the car will still cost about $42,000, and there’s no write-off, sales will fall flat and that will be the end. GM only has until the end of these subsidies to get the price down to around $30K, or else the party will be over. If the Republicans win the white house in 2012, or come to control the congress, I’m hoping they will kill these subsidies outright, and let the Volt expire.

  8. We should bail out the USSR, because in order to be a superHero, it is necessary to have a superVILLAIN. The damn Islamofascists just aren’t pulling their weight. It’s like going up against I STICK MY CHEWING GUM ON PEOPLE’S CHAIRS MAN.

    1. Good point. Besides, it will make the Olympics more exciting again… I’ve lost a great deal of interest since the USSR has fallen apart. Iran just doesn’t have the same caliber ice hockey team…

    2. That guy is such a WEENIS!

    3. So we need Bruce Willis to bust Samuel L. Jackson out of the loony bin?

  9. I don’t think the $45 billion in write-offs is being calculated correctly. If I recall correctly writeoffs allow you to take losses off against your income, thus lowering the amount you have to pay taxes on. Writeoffs are not a tax credit, allowing you to not pay taxes on that amount.

    Therefore the taxpayers aren’t losing another $45 billion, they are losing the tax rate applied to that $45 billion, which is a much lower number.

    Not to say that the bailout will not cost taxpayers, it will, but the extra $45 bil you tacked on for losses taken, is too high a number.

    1. Beat me to it by one minute!

    2. According to the linked article, the $45 B is the estimated tax benefit of taking the losses – not the lost number itself – which would have to be a higher number.

      1. So the estimated lost number is ~$128 billion at a 35% corporate rate?

    3. It was $45B against old losses. That means they need not have profit to write against. GM carries forward this amount, sort of a leg up.

  10. Accounting nitpick – the WSJ article lists 18.9 billion in past loss carryforward deferred tax assets, leaving 26.5 billion in tax savings related to pension and healthcare costs (what this is exactly is unclear from the article, and my brain has forgotten a bunch of the specifics of pension and retiree healthcare benefit accounting).

    A 45 billion tax asset (or future tax writeoff) is very different from being able to write off 45 billion in future profits. In fact, to gain 45 billion in tax benefit you would have to earn 45/.35 = 128.6 billion dollars. Since the limit on loss carryforwards is 20 years, that means GM would have to earn 128.6/20 = 6.4 billion per year for the next 20 years to gain the entire benefit.

    1. On further review, it appears Jason had the right of it. It looks like GM’s NOL carryforward was roughly $45 billion, which translates to about $16 billion in taxes they will not have to pay in the future. They are not reporting the $16 billion as an asset on their balance sheet currently as their current profit outlook does not make it appear more likely than not that they will earn $45 billion over the next 20 years to fully utilize the tax asset.

      Thus, Mz. Dalmia is incorrect in adding $45 to $60 billion to arrive at a $105 billion bailout figure. The actual benefit amount from the treasury department ignoring normal change of ownership rules is $16 billion.

      1. Oh I feel better now – Only 16 Billion. Why the sun is shining and the birds are tweeting in the sky.

        1. Even birds can tweet???

  11. I think the main reason that US cars manufacturers are even still in the game is because of fleet purchses. Federal, State, and local governments purchase American vehicles. Also, a lot of union fleets are American cars.. gotta support the UAW comrades.

  12. I don’t see what the problem is, pass a law requiring us to buy GM products and they’ll make a profit.

    1. It’s not like you’ll be forced to actually drive the piece of shit, so no worries.

      1. NO, NO, NO. You must drive the car in order to properly assist the spare parts and maintenance markets…no shirking you running dog capitalist lackey.

      2. Hey, mechanics have to eat!

        1. I’m a monster. How culd I be so unthinking. How about if people put the car on blocks and let it run? Then mechanics and Tommy Boy can stay in business, and people still won’t be forced to actually drive the shits. Sound fair?

          1. How about if they put carborundum in the crankcase of the gas motor, and THEN let it run?

            Last I checked, the government would pay thousands of dollars for that.

    2. Since none of the cars would run, we’ll HAVE TO have high speed rail!

  13. Does anyone else think all politicians should have their thumbs hacked off? Seriously, does anyone else use the thumbs-up gesture anymore but them?

    1. Oh, HELLS no.

    2. Er… I do once in a while.

      I grew up white in the suburbs. It is the way of my people.

      1. Hahaha, your people.

  14. This article provided a very clear explanation of the components of the bailout, something that’s been woefully missing from other accounts.

    Very well done, Shikha!

  15. It really pisses me off that they waste our money like this, but it pisses me off even more that they come right out and tout it as a success. At least have the balls to tell us the truth. Unfortunately, the reason they still lie, is that some people still believe anything that comes out of Obama’s mouth.

    1. Let me be clear; this is RAIN. Please ignore the acrid smell, yellowish tint, and lukewarm nature of the liquid.

  16. Whether or not the bailout “works”, it was wrong.

  17. “Treasury Secretary Timothy Geithner acknowledged last month: “We’re going to lose money in the auto industry.”

    Hey, E J Dionne, read it and weep, suckka.
    Governments are incapable of making money; they have to extort it.

  18. All those government fans can show their support by buying a GM car themselves.

    1. After what we — collectively — have paid to GM for these bailouts; shouldn’t they let us pick out a car and call it even?

      I’ll go first: Chevy Truck. Silver. With nice wheels. It’s the least shitty thing they make.

      1. I’ll take a Corvette.

        1. Me too. Z06 with 7 litre LS7 and 11:1 compression? Yes please!

          1. High compression

            General Motors

            Really? You trust that combination?

            1. I’d be more worried about the torque tube. I saw that and thought cool, weight distribution, then I thought… It’s a chevy, there’s no way they got that right.

  19. WIN for Obama!! Corporations are evil, but still… WIN, BABY!! WIN! WIN! WIN!!! I wouldn’t buy a crappy GM car for anything, but… WE WIN!! OH YEAHS!!

  20. The equity means two things: One, GM has zero interest payments, something that gives it a distinct advantage over competitors. Ford, by contrast, had to pay $251 million in debt-service costs.

    Somebody asked this in an earlier thread: I wonder how many Ford workers will be voting for OBAMA next time.

    1. “Somebody asked this in an earlier thread: I wonder how many Ford workers will be voting for OBAMA next time.”

      Good question, and how many Ford stockholders?

      1. And how many former GM “bond” holders

  21. When is this Keynesian bullshit going to be looked at in terms of results?

    I wonder what GM’s revenues were for this time period.

  22. “Obama’s spin on GM’s latest profit report is pure baloney.”
    Yes, he is a lying sack of shit with big ears.

    1. That’s sack-ist.

      1. Also earist.

  23. This isn?t an apples to apples comparison. If GM had gone into liquidation, the Government would have never received the $45bn in tax revenue the author is citing as an opportunity cost. Therefore, the cost is closer to $13-19bn, which is peanuts compared to the $1,000bn spent on Iraq.

    1. Yep, cause God knows Reason’s writers and all of us commenters are extra super gung ho about the war in Iraq…

    2. “compared to the $1,000bn spent on Iraq.”

      Which is peanuts compared to the cumulative amounts spend on Medicare and Medicaid since inception – and just as irrelvant to the point that the taxpayers are getting lied to about whether they’re getting their money back on GM.

      1. Which is peanuts compared to the hundreds of millions in mandated expenses the Government has forced U.S. automakers to pay to comply with CAFE since 1974. I hate the bailouts as much as anyone, but the G’ment ran these companies into the bankrupcty as much as any POS 1983 Buick.

    3. If GM had gone into liquidation…

      That’s a awfully big assumption there, Jose. Corporations go into bankruptcy restructuring all the time without there being liquidation. Hell, even the liquidation assumption isn’t that strong in support of your arguement. You have to assume liquidation with no economic usefulness for the liquidated assets.

  24. When can we do an Iraq IPO?

  25. Had the fed gov not bailed out GM, the entire American auto industry would have disappeared, or been reduced to a shell of what it currently is. This would have led to 100,000s of job losses, and speaking as someone who lives with someone who has been out of work for a year, the misery caused by the financial collapse is palpable. I think the comment above “Whether or not the bailout “works”, it was wrong.” gets the libertarian view point about right. I do not share this view point, but I respect it. I do not believe though that you can look at the facts, and reach any conclusion other than the auto bailout was a success; it achieved its twin goals of saving the auto industry and prevented additional job losses. Arguably it was not principled, it was definitely not pretty, but it was effective.

    1. Or rather Ford, Toyota, Honda, Volkswagen, etc. etc. would have picked up the extra market share of actual auto demand that existed.

      1. Note that the new Passat, 43 MPG TDI Diesel, will be outsourced to Tennessee, which, to some people right now, appears to be overseas. When the flood waters recede, it will be right here in the US, though.

      2. Or maybe not. I think timsprocket got to the heart of the matter with-

        “Wether or not the bailout works it was wrong” Mr. Libertarian

    2. Creative destruction anyone?? No, propping up a failed business leads to job loss, though individuals may not like, overall forcing a business to adjust, or the market to adjust creates jobs. It also means more wealth for everyone, as products are actually being produced that people want, that are of better quality, and not just hole digging.

    3. Arguably it was not principled, it was definitely not pretty, but it was effective.

      It was most certainly not principled, I don’t know how you can argue that you are defending a “principle” by simply delaying the inevitable with a failing business. GM will still fail, as they haven’t fixed the problems that they had to begin with -labor costs from ridiculous Union contracts (which haven’t changed at all, they just handed the bill to taxpayers) and a dysfunctional market direction.

      “Not pretty” is a nice way to airbrush the complete insanity of allowing GM and Chrysler to walk away from their bankruptcy obligations via tax payer dollars and at the same time continue to allow the Union to bargain for wages and benefits that GM can’t afford if they want to stay in business. Sadly none of this has really changed. The Union made minor concessions but nowhere near enough to fix the systemic cost issues rampant at GM.

      You can say the bailout was “effective” in delaying the inevitable, but if you think that this has “fixed” GM you’re sorely mistaken. GM can’t sell any Volts, even with a $7500 tax credit ($plus another $5K in some states!). The problems are bigger than what a taxpayer check can fix.

      And here’s the bigger problem- Yes, I agree 100,000 people would’ve lost jobs and this would have been tragic for each individual person. But why does GM get bailed out when other companies are allowed to fail, even if these other companies employ lots of people too? (a: because of the Unions). What you have seen is the worst thing that can happen to a market; government picking and choosing the winners and losers.

      What will end up happening in the future is going to be far worse with more layoffs, more unfunded pensions and a much higher taxpayer tab.

      1. The jobs that are GM and Chrysler now would have been picked up by other automakers. Well, they’d have needed enough workers to take up the demand in the market anyway, I don’t know that they’d accept ex-union workers who had just ridden another automaker down like Captain Ahab on Moby Dick, stabbing for the heart.

    4. “the auto industry would have disappeared” was an administration talking point that wasn’t correct. That talking point assumes only chapter 7 – liquidation bankruptcy – was available, when a chapter 11 bankruptcy would have allowed restructuring without liquidation, and would not have had the domino effect of a chapter 7 liquidation. I have never heard any reasons why chapter 11 was not available. As far as I can tell, the problem with chapter 11 bankruptcy was it would allow reassessment of union contracts – which was opposed by the unions (and the politicians they own). The goal of the bailout was not save the auto industry – it was to protect union interests from the effects of bankruptcy court. In that it has a temporary success. In the long term it has generated a government subsidized competitor whose structural problems cannot be overcome (except through bankruptcy court) that is skewing the market, affecting viable american companies like Ford. This is not a long term benefit to either the union or the auto industry.

    5. Because a Chevrolet assembled in Mexico is MUCH more American than a Honda assembled in South Carolina.

  26. Had the fed gov not bailed out GM, the entire American auto industry would have disappeared, or been reduced to a shell of what it currently is. This would have led to 100,000s of job losses…

    Prove it.

    1. He doesn’t need to prove it! As scottindallas asserts, the US auto-industry is FAR more efficient than those smelly foreigners. The fault lies with those greedy rich NOT funding retirement! See:…..nt_2303772

    2. Quick response to the above comments to my post: 1. Ford for one would not have picked up the slack if GM had been allowed to be liquidated because it too would have gone bankrupt.
      2. I support creative destruction, but good companies and bad ones, i.e. GM and Ford, were equally punished by the Financial bubble bursting. In a healthy economy you let the markets do their thing, and see what comes next. In a crisis, you put out fires. Maybe you think it would have been “creative” to let the American economy suffer a body blow, worse than what did happen, but there was no need to put everyone out of work when, A: the cause was greed and fraud on Wall St., and B: public policy can be used to mitigate the very real pain of economic catastrophe. 3. As to the notion I should “prove it,” fair enough. Unforunately I am working, so any stats I can collect for you will probably come long after you move on from this article. I invite you though to do your own research, with an open mind.

      1. Guess what the people here feel about the bailouts to wall street. It’s amazing that people still come here with that argument.

        1. All bailouts are the same? You would have to have been both conceived and raised in an outhouse to argue against the above timsprocket line B- “Public policy can be used to mitigate the very real pain of economic catastrophe.

      2. Furthermore, your idea that markets only work in a “healthy” economy is absurd. A “healthy” economy is an economy that operates on principles of profit and loss. For the past 2 decades GM and Chrysler had been failing to keep up with the rest of the auto industry. They were spending more than they took in, because people were not buying their cars. If they had gone bankrupt, that would not have been the sign of a sick economy, but in fact a sign that the economy was quite healthy.

      3. Ford for one would not have picked up the slack if GM had been allowed to be liquidated because it too would have gone bankrupt.

        Citation needed. You say this as a matter of faith but history has proven otherwise. Several other car companies (Packard, AMC) have gone out business before, and this didn’t put Ford or GM out of business either.

        2. I support creative destruction, but good companies and bad ones, i.e. GM and Ford, were equally punished by the Financial bubble bursting.

        GM wasn’t “punished” at all. If anything Ford went to their bedrooms without supper and GM got to eat Fords dinner, and dessert, and sleep with my mom and dad so they wouldn’t have nightmares. How getting handed a check for $60 billion with no strings attached is somehow a “punishment” seems illogical.

        A: the cause was greed and fraud on Wall St., and B: public policy can be used to mitigate the very real pain of economic catastrophe.

        No, no and NOOOOOO. Government removing risk from the housing sector is what caused the economic collapse. You cannot EVER remove “greed” from the market. (See Milton for more – )

        3.) I’d love to see the Krugmanesque sob story article you’ll pull out to try and justify your Keynesian fantasies.

        1. “Keynesian fantasies.”

          That is redundent. The two words are synonomous.

        2. AMC is not a good comparison. It was sold to GM in 1987 for $2 billion (2011 dollars), and had less than 2% market share. GM had about 20% market share. Add in Chrysler, and you can see that a large portion of the auto industry was imperiled by the great recession. Its interesting that someone commented that there is a difference between ch. 7 & 11, true, and the GM BK could have been handled in many different ways. But if the Feds could have engineered a BK w/o tossing in taxpayer dollars to facilitate the deal, they would have been happy to do so. (Incidentally Canada chipped in billions too, again not because of some left wing conspiracy, but to save auto jobs.) Also, the entire industry was in jeopardy, including Japanese, S Kor., and German makers, due to the almost overnight collapse in auto sales. This is the punishment I am referring to. I agree that GM was already heading towards failure, and the execs & share holders should have been punished even more, but that is not what I am referring to. What I am telling you is the shenigans on Wall St. obliterated auto sales.

          I am not sure what to make of the Krugmanesque comment. Here is a link on the cost of the auto bailout (est. $19B)…..19-billion

          Here is a link from WSJ indicating the auto bailout saved 1 million jobs.…..tudy-says/

          1. You made the same tired points all over again, sourcing the same Government sources biased in favor of showing a positive outcome from handing a check to GM for $60 billion. You are living in a fantasy world if you think taxpayers will ever see that money again.

            The CBO report linked from IBD aso states the following-

            the fact that the government helped absorb the consequences of GM’s and Chrysler’s failures has put more competently managed automotive companies at a disadvantage. For these reasons, the effects of Treasury’s intervention will linger long after taxpayers have sold their last share of stock in the automotive industry.

            So imagine if Ford starts going out of business because they can’t compete with GM’s cost structure considering GM has a Sugar Daddy in Washington. Will we bail them out too?

            When does it end?

            The WSJ link was simply a rehash of a report from CARS which is a government funded study specifically designed to come up with a justification for the bailout itself. I would need a secondary opinion instead of that.

            Here’s one from Wilfried Porth, member of the Board of Management at Daimler AG, who cautions against the assumption that the GM bailout saved American jobs. He warns legislators against subsidizing the auto industry to the same extent as of the commercial airline industry.

            And you continue to peddle the myth that it was Wall Street “greed” that caused the economic collapse. You just don’t get it, period.

            1. Yes it was Wall Street “greed” that caused the collapse. Or let’s call it human nature coupled with deregulation.Or bushy tailed racoons with a hard on.

      4. Let’s cut out the lost tax receipts and accept the optimistic numbers and say that the taxpayers will only lose 13 billion on GM. GM employs 200,000 people WORLDWIDE. That means we could have simply cut each GM employee in the world a check for 65,000 dollars and been done with it.

      5. They were loosing money before the bust.

      6. but there was no need to put everyone out of work when, A: the cause was greed and fraud on Wall St.

        Except the automakers were in a death spiral before the housing bubble burst. They were downgraded to junk bonds in 2005.

      7. Ford took a blow from the recession as well, but survived just fine without taking any government money or going through a restructuring. Good management, both before and during the recession made much of the difference.

    3. Lehman brothers.

  27. Most taxpayers have forgotten that GM also received $54 million in Federal tax forgiveness to “make the its stock more attractive to investors”, not to mention the $7500 rebate the government will be providing to entice buyers to purchase the Chevy Volt, the car the NYT auto writer described as “The Electric Lemon” and which Consumer Reports termed a “car that doesn’t make sense.” Some 1200 (wow!) have been sold nationally since the beginning of the year. (If you order one, be sure to check the “Fire Extinguisher” box on the “Optional Equipment” list.)

    1. Why didn’t we “reduce spending in the tax code”, then, if it’s so important now?

  28. While I agree with the general thrust of Ms. Dalmia’s piece, I think she may have one item incorrect. I believe that the bailout package allows them to write off an additional $45 billion of future profits (in excess of what a company would normally be able to do after a bankruptcy), but that will only yield about $15 billion in tax savings.

    I don’t mean to detract from her main point (which is correct), but I think she might be wrong on this detail.

  29. If they’d opened up the bidding to the Chinese, they would have picked over GM and bought much of it out during bankruptcy. Same with Chrysler.

    I think Honda would have competed with them for their truck platforms, as well. Given a clear field, it would have allowed them to enter a market that they aren’t currently in.

    We really missed the boat here.

    Those truck platforms were/are the golden goose, and Chrysler is reporting profits mostly because of them. The greenies hate this, but those have been the only paying Big 3 platforms for years now… the trucks.

    Oh, and Fiat is only involved with Chrysler to leverage their dealer and service network so they can import foreign built cars. It would have taken them at least 20 years to build what they’ll get for free, basically.

    We missed out. Bankruptcy, and turn it over to the Asians… that was our best course. We keep the jobs and the government doesn’t have to borrow the bailout cash from… those same Asians.

    Funny how this works.

    1. So the Chinese government would have done a better job managing GM than the US?

  30. GM paid finished paying off its loan on April 21, 2011, according to press releases on that day. Did the author do any research? Here, I’ll help…

    1. GM paid off part of the loan with taxpayer funds. Did you read anything that you googled?

    2. The taxpayers paid off the loan for them?
      Did you do any research beyond “The Weekly Reader”?

  31. And let’s also not forget that all the bond holders lost THEIR equity when this all happened – contrary to normal practice where they would have been first in line.

    1. Yes.

      The Obama administration essentially broke the law – the rules of bankruptcy succession. The bondholders share of the company was stolen from them and given to the labor unions.

  32. Sorry to point out to the author that if GM did not receive the bailout they would have declared bankruptcy and the $45 billion in foregone taxes would not have been paid. Time will tell if the government will get the full $60 billion back. If the author thinks he can make a case under the banner of reason, he should eliminate overt bias and stick with the facts.

    1. “$45 billion in foregone taxes would not have been paid”


  33. Some of you seem to not know the difference between bankruptcy and liquidation. Most companies go thru a bankruptcy plan and emerge with a stronger balance sheet and lower liabilities and don’t need a loan from the gov’t. GM was not facing liquidation but a normal bankruptcy, which would have allowed it to break its union contracts.

    And under bankruptcy law, a company can carry forward its losses to offset future profits provided their is not a change of control (so that profitable companies cant BUY the losses) and they expire if their is a control change. Since the gov’t sold a stake resulting in a change of control, technically the loss carryforwards should not have been allowed to remain. Obama basically exemepted the company from this rule of law so as to enhance the value of the company in its sale to the public, essentially giving the company an extra $12 billion of our money for free.

    from the WSJ

    .The biggest losers here are GM’s bondholders. According the Treasury-GM debt-for-equity swap announced Monday, GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers. Under Monday’s offer, they would exchange their $27.2 billion in bonds for 10% of the stock of the restructured GM. This could amount to less than five cents on the dollar.The Treasury, which is owed $16.2 billion, would receive 50% of the stock and $8.1 billion in debt — as much as 87 cents on the dollar. The union’s retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That’s worth about 76 cents on the dollar, according to some estimates.In a genuine Chapter 11 bankruptcy, these three groups of creditors would all be similarly situated — because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim — the bondholders — get the smallest piece of the restructured company by a huge margin

    1. Obama basically exemepted the company from this rule of law so as to enhance the value of the company in its sale to the public, essentially giving the company an extra $12 billion of our money for free.

      Which means it’s partly offset by an increase in the sale price. Which is slightly less awful. Of course, the real intent of that shell game is to show off the stock price as they sell shares and be able to declare a “profit” that they can trot around as a talking point. It’s not about the net impact of all the government money, but about buying at level x and selling at level y and treating that as the profit from the bailout.

      And anyone who questions it will get the treatment that tax loss carryforwards are an esoteric subject.

  34. It is really a pure baloney

  35. The report is pure baloney!

  36. But the GM CEO gets his huge salary and even bigger bonus! And for what?
    Sickening. GM workers are now down to $ 14.95 per hour. One has to admire the Germans, their unions, their high pay and benefits and their management abilities.

  37. One should also consider the losses on the bonds written off in the bankruptcy and the skewing of the bankruptcy settlement against those bond holders. The investors will be able to write off these losses ,further reducing the Treasury take on profits.

  38. as others have pointed out already, the tax piece of this article is incorrect. in addition to what others have said – that the benefit is more like $16bn than $45bn, and the government would have seen none of that $16bn if GM had simply ceased to exist – the statement about companies losing tax attributes in bankruptcy is also incorrect.

    a bankruptcy is often a qualifying “G” reorg, under section 368(a)(1)(G) of the internal revenue code. under section 381(a)(2), net operating losses and other tax attributes would carryover from the old corporation to the new, post-bankruptcy corporation.

    depending on the details of the bankruptcy reorganization, section 382 (or other similar provisions) might limit the use of the losses and other valuable tax attributes in future years. it is unlikely, however, that the limitation would complete wipe them out.

    this mistake doesn’t meaningfully detract from the main thesis of the article, as the author more or less ignores the claimed $45bn, but it should nevertheless be corrected. note that the linked WSJ article correctly states the rule about losses – the issue is “ownership change”, not bankruptcy.

    finally, the author also seems to ignore dividends paid on the GM stock. this may be fair if the dividends approximate what an interest payment would be. but she should at least mention dividends and take them into account in some way, especially because she mentions the lack of interest payments.

    when it’s all said and done, her main point may well stand. but frankly this is not a persuasive article as it currently stands because of the missing or inaccurate aspects of the existing calculation.

  39. They rescued nothing. It was a government takeover, pure and simple…

  40. Ms Dalmia, what a pessimist you are!

    You must walk under a black cloud all the time. Are you too stupid to see the silver lining under the black cloud? Or have you always been a big crybaby?

    The bright side of the picture is that many thousands of Americans still have a job and are paying taxes instead of collecting tax money in the form of unemployment, Medicaid, food stamps and welfare. What a blessing!

    I and a large number of real Americans understand that and thank Presidents Bush and Obama for acting with intelligence and saving our economy from being much more of a catastrophe than it was and is.

    1. Hahahahahahaha! Great one! I almost shat myself in laughter! So if I raid your bank account and spend all the money on stuff that will benefit me and my close friends, you’re down with that, right?


      1. You are as stupid as the author. Nobody raided your bank account, stupid. It’s too bad that you don’t get it.

        You are probably one of the half of those who doesn’t pay income taxes anyhow. It appears that you aren’t intelligent enough to make much money.

        1. Curious, Jim, does “intelligent” = “ability to convince the old man to get you a job down at the Windstar plan” in your universe?

  41. Barry Obama should be in jail for being an Idiot of the First Order. Oh, and for lying like a mo-fo.

  42. We’re talking W, too.

    If Obama is an idiot and a liar, what do you think of Bush?

  43. this article reminded me of the headlines today about the sale of AIG stock. there was a some crowing that the Fed gov’t made a $40 million profit on the sale of 200 million shares. Not mentioned was the fact that BAC, MS and JPM got paid $385 million in underwriting fees for this sale. also forgotten was the fact that this week alone the US Treasury issued $110 million in new debt. One step forward , 6 steps backward and 2 steps to either side.

  44. Oh yeah and there was yesterday’s news that Chrysler REPAID part of the bailout loans early? Loan was not due until 2017. This was evidence of chrysler’s “comeback”. How did they accomplish this miracle? By borrowing the money over an even longer period of time and saddling themselves with more interest payments.

    1. How absurd is that!

      If I owe you a lot of money and pay it back, do you care where the money came from? Is it even any of your business?

      1. No, of course not. But Chrysler was using this “payback” as evidence of how well it is doing as a business, which is nothing but spin.

      2. If you hadn’t paid back everything you owed and I still owned 6.6% of your business that I desperately wanted to sell, and you just asked me to co sign the 3rd party loan which you used to for partial payment, yeah I would be concerned and yeah it is my business. I would also be laughing at you if you threw a big “PAID” party and handed out some stupid buttons and pretended you had actually accomplished something.

  45. It is when you’re trying to convince me of your solvency, numnuts.

  46. For your information, the loan GM owed to the US government has been paid. The US government does own part of GM and will sell their share when the value of GM shares gets higher. But, to say GM will never pay the loan is not a true statement.

  47. Wrong again…so whine like a little girl.HAHA Republicans look weak and stupid…thanks!

  48. I guess we are screwed..Obama was right and we look like the little men we are….

  49. Libertarians complaining about TAX BREAKS!

    If you want to be credible then you need to link to the material you are pulling you quotes from.

    If you don’t then it is fair to assume you are lying.

  50. Sorry, Shikha, but Ford received large government subsidies as well. It received billions in “clean car grants,” as well as receiving extensive funding through its wholly-owned Ford Credit subsidiary — which participated in TARP bailout funding.

    Ironically, Chrysler got the least of any of the Detroit Three (and got punished the most). It’s also turning around the fastest of any of them.

  51. The writer does not know what he’s talking about. GM has already paid what they owe. Now, it’s up to the US government to sell their shares of GM stocks so they can get some or all of it’s money back. The break even point is about $42.00 dollars a share. The US government is waiting for the GM stock to go up in price before they sell off their shares and it will.

  52. What about all the jobs that were saved at GM? What about all the jobs peripheral to GM that were also saved. What about all the money that the job holders earned and was put back into local economies, like restaurants that didn’t close up shop because they still had customers with jobs spending money in their businesses? What about all the unemployment monies that did not have to be paid out if GM was just let to fail? And what about tax dollars that would not be collected from workers and businesses? Your one sided arguments are based on maybe’s with no guarantee of outcome, but one thing for sure and factual is, we still have a viable auto industry in America no thanks to job killing non thinkers like yourself!

  53. People come on. Government = mob, GM = mob accountant. Any arguments please see your current list of civil rights which is being taken away slowly. GM is where the government sends it’s dirty money. That’s the only reason why they got bailed out. Because I still can’t figure how a company that makes absolute garbage cars stayed afloat for so long.

  54. I’m conflicted about the issue of GM and taxpayers. It’s so frustrating that they got a ridiculously huge bailout: kind of ruins the concept of capitalism. Then again, it’s not economically feasible for GM to pay back the money.
    Either way, I think there’s a lot of greed in this situation disguised by good intentions. I read a book about that- “Shadow in the USA” by Kay Plumb (, and it’s made me see greed everywhere.

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  56. What is the story about Obama, et al, giving the GM stockholder’s shares to the Union at GM?

  57. Who would buy a GM product? If they do they are life labeled idiots.

  58. Feel free to ignore the economic impact that the millions of jobs saved have on this economy. Taxpayers may never “directly” recover the amount of money we invested in GM, but the amount of economic acitivity generated by every auto industry job saved will far exceed just the raw number of what we paid to save GM. Just something to consider.

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