What helped rescue the American auto manufacturer after the 2008-09 economic crisis?
Well, mostly you did, the American taxpayer.
Through decades of bad management, little foresight into what car buyers wanted and over zealous unions pushing for more and more worker concessions, it only took the nudge of an economic crisis to expose which car companies were swimming naked when the economic tides went out.
General Motors was certainly the sickest of the Big 3, with Chrysler right behind. Both would probable have folded up their tents and gone under had the U.S. government not spent your money to rescue these behemoths.
Fearing that GM and Chrysler would file bankruptcy — and a valid concern it was — the U.S. government first took to assuming every one of their car warranties so these companies could continue to sell their cars.
Fears of a bankruptcy and therefore having no warranty to back their cars, consumers would have stopped buying cars from both of these companies. The government program for backing warranties was complicated, but in one sentence, you get the picture;
“The U.S. Treasury will work with the auto companies to back-stop your GM and Chrysler warranties, and will commit to honoring that warranty in the event that the manufacturer cannot.”
That’s a taxpayer backstop, no matter how you look at it. Government help didn’t stop there, however. About $24 billion dollars in taxpayer funds went to these private, for-profit companies in the months to follow:
• $17.4 billion for General Motors and Chrysler.
• $6 billion for GMAC.
• $1.5 billion for Chrysler Financial.
As government bailouts go, the companies were allowed to keep all the profits they previously made throughout the years. There was never any mention of asking for any reimbursement of previous profits by the government, and although they made billions in profits and paid huge bonuses, these companies apparently didn’t save much of any of it.
Then, once car sales plummeted during the real estate bust, GM and Chrysler started to gasp and eagerly gulped down your tax money to keep their bloated carcasses alive.
The government made them promise to streamline their products and strive for more fuel-efficient cars, something these companies should have been doing anyway, but that sounded good so that’s what was spoon-fed to the public as “conditions” of the bailout.
Now that these companies are alive and kicking and once again making huge profits and paying large VP bonuses, the Feds continue to help them limp along with ultra-low interest rates to fuel car loans, and the banking sector is now packaging up auto loans into bundles called “tranches,” much like they did with real estate loans a few years back. I guess we never learn.
In conclusion, many Americans supported the government bailouts of the auto companies but nowhere in the Constitution does it authorize “bailouts of private for-profit companies with public funds.” In fact, it expressly forbids it. It does state, however, that we are a free country, but that also means that if you make mistakes, you’re free to go broke, as well.
This article expresses the opinions of Marc Cuniberti. He hosts “Money Matters” on KVMR FM 89.5 and 105.1 FM at noon Thursdays. His website is www.moneymanagementradio.com.