People will be arguing for years over whether the decision to bailout the auto industry when the financial markets nearly collapsed in 2009 was a good maneuver. Dedicated free-market purists argue that the Federal government should never have gotten involved in the first place, and left General Motors (NYSE:GM) and others to their own devices to sort out their own needs by themselves. Others argue that the financial burden of allowing that to happen would have been far costlier than the financial intervention, and that the Fed did what it needed to in order to ensure a degree of stability.
Now that the dust has cleared and the government has officially exited its stake in GM, a new report has surfaced that indicates that the injection of taxpayer dollars saved roughly 1.5 million jobs, between General Motors and the Chrysler Group. On a more financially relevant note, the report further estimates that the move preserved $105.3 billion in personal and social insurance tax collections, Reuters reports.
That’s a significantly higher number than was invested about four years ago, which totaled about $80 billion to “avoid the collapse of the industry that they felt would result in the loss of millions of U.S. jobs,” Reuters says. It would appear, then, that the government made the right decision in intervening in the economy’s best interest.
The report was authored by the Center for Automotive Research (or, CAR), which notably receives about 80 percent of its funding from sources other than major auto manufacturers or interests. ”Two consecutive executive administrations in Washington decided in late 2008 and early 2009 that the consequences of the potential losses and outcomes to the U.S. economy were worth avoiding through a federal intervention,” Sean McAlinden, the center’s chief economist, said in a statement. “This peacetime intervention in the private sector by the U.S. government will be viewed as one of the most successful interventions in U.S. economic history,” he added.
For General Motors, the government came up about $11 billion short on its investment, recovering $39 billion of the $49.5 billion or so that it plugged into the nation’s largest automaker. Had the investment not been made, CAR projects that a shutdown of the industry would have resulted in the loss of 2.63 million jobs, and those losses would still have remained above 1.5 million in 2010. If only GM had been shut down (but Chrysler saved), the job losses would have been almost 1.2 million in 2009, and remained at 675,000 in 2010.
Long story short, the government was able to navigate around a loss of an estimated $105.3 billion by instead incurring a loss of $13.7 billion, $11.8 billion of which is attributable to GM and $1.9 billion which is related to Chrysler.
However, CAR acknowledged that the study did not take into account the benefits of preserving the pensions of almost 600,000 GM and Chrysler retirees, as well as industry research and development jobs. Reuters says that it also did not account for the psychological impact the collapse of GM and Chrysler would have had on the U.S. industrial base.
Though Ford (NYSE:F) emerged from the crisis without taking money, the company did support the federal efforts to salvage the industry. “If GM and Chrysler would’ve gone into free-fall, that could’ve taken the entire supply base into free-fall also, and taken the U.S. from a recession into a depression,” said Ford CEO Alan Mullaly, just last year. “That is why we testified on the behalf of our competitors even though we clearly did not need precious taxpayer money.”
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