When is Losing $14 Billion a Good Thing?

blr-editor | July 23, 2011 | Comments (0)

A newly invigorated GM is creating new jobs ... and profit

This is a strange question, I know. However, the answer is when it stops you from losing $28.6 billion.

Adding in the $1.3 billion loss on its Chrysler investment, announced last Thursday, the U.S. government’s final losses on the auto industry bailout now total about $14 billion.

How can that be a bargain, you ask? Well, first of all, the Treasury was expecting that taxpayers would be on the hook for up to $40 billion, so the number is far better.

The main argument though, is to consider what would have happened had the government not stepped in to bail out Chrysler and GM.

A study by the Michigan-based Center for Automotive Research says that if GM and Chrysler had collapsed, it would have cost the federal government about $28.6 billion in lost tax revenues and assistance to the unemployed in just the first two years alone.

Everyone would have been affected, thousands of newly unemployed workers, all the suppliers, the communities, and the housing markets as former workers went into foreclosure, and of course the social impact.

In other words, doing nothing – as espoused by the Tea Party faithful – would have cost more than twice as much the bailout in just the first two years.

An interesting article by Cnnfn.com states:

“In the year leading up to the Chrysler and General Motors’ bankruptcies, the auto industry lost 400,000 jobs. Since the bailout, about 113,000 of those jobs have been recovered, according to the Treasury Department.

… (the report) put the potential job losses if GM and Chrysler had been allowed to fail at more than 1 million in the first year, alone.

Instead of failing and dragging a big chunk of America’s economy down with it, GM says it has has hired 15,720 people since the bail-out and has invested $5.4 billion in the U.S. Chrysler, meanwhile, reports it has hired 6,000 and invested $3.2 billion.”

So in summary, the auto bailout may have been a bargain after all. What are your thoughts?