OBAMA/

Last week President Barack Obama visited a General Motors factory to proclaim the auto bailout a success, and today calls at a Ford Motors facility to proclaim the car industry recovered. Sales of U.S.-made vehicles are rising, while Ford – which, bless its internal-combustion heart, refused government money – just announced a $2.6 billion second quarter profit. That makes it time to assess the car companies.

The country benefits from the saving of GM, but at the cost of yet more debt.
Converted to today’s dollars, the 1979 Chrysler bailout – hugely controversial at the time – cost $4 billion. All of it was repaid within three years. The current General Motors/Chrysler bailout – enacted with almost no debate in Congress – has cost about $110 billion, when subsidies to both companies, their parts makers, finance arms and pension plans are taken into account.

Taxpayers are on the hook for General Motors and Chrysler warranty claims should either company still fail, which might cost nothing or many billions. Plus, General Motors received a hidden handout of tax exemption for the first $16 billion of future profits. That brings the current auto bailout to around $120 billion – 30 times the inflation-adjusted expense of the 1979 bailout.

We’ll be lucky to get back half the cost of rescuing General Motors.
The peak market capitalization for GM came in 2000, when it was worth about $70 billion in today’s dollars. For taxpayers to get their investment back by selling the 61 percent of GM the public now owns, General Motors would need to rebound to somewhere around its peak value. This seems improbable given that valuation came when General Motors had almost twice the market share it commands now. GM may return to profitability, and investors might make money on its expected IPO. Taxpayers will be fortunate to recover 50 cents on the dollar, while big banks are returning to the public 90 to 105 cents on their bailout dollars.

We’ll be lucky to get anything back on Chrysler – but Italy benefits. Taxpayers hold only a small equity stake in the revamped Chrysler, and likely can kiss their $8 billion bailout goodbye. Fiat paid close to nothing for (essentially) taking control of the company, giving the Italian automaker a readymade U.S. distribution network. It’s a great deal for Fiat – either the company rebounds in the United States market at little capital cost, or gives up and folds Chrysler, having put hardly any chips on the table.