USA Today Editorial: Admit It, The Auto Bailout Is Working

For Immediate Release:

June 16, 2011

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USA Today Editorial Board

A little more than two years after General Motors and Chrysler were forced through bankruptcy proceedings in return for government cash, the time has come to acknowledge the unlikely success of the auto bailout.

GM and Chrysler exited bankruptcy at lightning speed (GM in just 39 days) with lower labor costs, fewer dealers and reduced debts. Along with Ford, they can now make money from small vehicles, as well as large ones, something that eluded them in their previous, bloated forms.

Add the positive reviews for cars such as the Chevrolet Cruze and the increasingly optimistic projections for global growth, and the conclusion is as unavoidable as it is surprising: The U.S. auto industry is emerging from its near-death experience in better competitive shape than it has been in many years.

Only don't share any of this good news with the bailout's critics, particularly the sourpusses who would be the Republican Party's presidential nominee. In a move reminiscent of Barack Obama's initial, stubborn refusal in 2008 to acknowledge the success of George W. Bush's troop surge in Iraq, none of the seven candidates at Monday's first major debate was willing to admit the obvious.

Instead, the candidates — most explicitly former senator Rick Santorum of Pennsylvania and, by implication, former Massachusetts governor Mitt Romney— left the impression that GM and Chrysler could have reorganized under Chapter 11 bankruptcy without government intervention.

Really? On what planet would the automakers have found private lenders willing to provide tens of billions of dollars in needed bankruptcy financing at the height of a financial panic? On Earth, the major banks in 2008 and 2009 were concerned about one thing — their own survival. In fact, credit markets were so dysfunctional that even healthy blue-chip companies such as General Electric and McDonald's had to borrow money from the Federal Reserve to finance their day-to-day operations.

Bailout critics also contend that free markets should punish failure and reward success, and that Ford should have been allowed to gain the customers left by the collapse of GM and Chrysler. In economic textbooks, that is correct. But Ford CEO Alan Mulally has repeatedly said that the demise of GM and Chrysler would have meant curtains for suppliers and Ford as well.

At this point, the government appears likely to recoup all but about $13 billion of the $82 billion put into the bailout, the biggest variables being the price at which the Treasury cashes out its remaining stakes in GM and Ally (formerly known as GMAC).

That loss is nothing to sneeze at. It's a heck of a lot better, though, than the $108 billion to $156 billion the government would have lost over three years if it hadn't intervened, according to the Center for Automotive Research, a Detroit-based think tank. Those losses would have come in the form of lower tax receipts and higher spending for pension guarantees, jobless pay and other benefits.

The bailout details, hammered out in a crisis, were far from perfect. Most notably, the Obama administration was too easy on the labor unions, at the expense of private creditors in Chrysler's case and taxpayers in GM's. And no one can guarantee that the two companies are out of the woods for good.

But on the whole the skeptics, of which this page was one, should be prepared to concede that the basic structure of the bailout — government help in return for a trip through bankruptcy court — was the right way to prevent a vital U.S. industry from ending up as roadkill.