Auto Bailout Leaves a Dangerous Legacy

COMMENTARY Budget and Spending

Auto Bailout Leaves a Dangerous Legacy

Feb 23, 2012 1 min read

Former Senior Research Fellow in Regulatory Policy

James Gattuso handled regulatory and telecommunications issues for The Heritage Foundation.

Only in Washington can you lose billions of dollars and call it a success.

Despite hopeful claims last year that the bailouts of General Motors and Chrysler could break even, the government estimated recently that taxpayers would be on the hook for $23.77 billion extended to the two automakers in 2008 and 2009. That's $95,000 for every current GM and Chrysler employee.

Though the loss on paper may have shrunk by several billion dollars in recent weeks, as shares still owned by the government have risen in price, it's hardly a bargain by any measure.

But more problematic is the legacy of government interference with private business that the bailout left behind. Today, three years after Washington stepped in, U.S. taxpayers still own 32% of GM. (The taxpayer stake in Chrysler was sold to the Italian automaker Fiat.)

And while the administration has tried to maintain a hands-off approach to the management of GM — which stands alongside Fannie Mae and the Postal Service as the largest government-owned enterprises in America — political influence has been clear in everything from the selection of dealers to be closed to the marketing of dubious, but administration-favored, "green" vehicles.

GM and Chrysler did need change; in 2008 and 2009 they were sinking, and sinking fast. But that change came not from bailout and nationalization, but through bankruptcy — a process that allows firms to cut costs and restructure themselves in just such situations. And the administration gets kudos for insisting on bankruptcy filings by the two firms, although they later botched it by forcing special preferences for labor unions.

Would a properly run bankruptcy have been enough to save Detroit? Quite possibly. Restructuring put the firms on a better footing, and by reducing labor costs more — and reducing interference from Washington — private capital could have been forthcoming. Even in the worst-case scenario — liquidation — the firms' assets (and jobs) would not have disappeared; they would have gone to other firms.

No one knows precisely what would have happened had policymakers pursued a less interventionist road. But the road that was chosen — putting politicians in the driver's seat of a major American industry — was the more dangerous. "Successful" or not, it's no model for the future.

James Gattuso is a senior research fellow at the Heritage Foundation.

First appeared in USA Today