The report, The Auto Bailout – A Taxpayer Quagmire, authored by NTU Adjunct Scholar Thomas D. Hopkins, Professor of Economics at the University of Rochester, does the math on what the government bailout of the auto industry – including General Motors, Chrysler, and GMAC – actually means to American taxpayers, including how much each taxpayer has contributed to the auto industry since December 2008 and how much each vehicle is costing us.
“Every time someone in your neighborhood drives home in a shiny new Chevy Silverado, remember that it cost American taxpayers more than $12,000,” said Pete Sepp, NTU Vice President for Policy and Communications. “Between this and GM’s plan to payback their bailout debt with other taxpayer funds, I wonder if all those Americans without work right now could think of any better ways to spend that money. This is a play out of the Bernie Madoff ponzi scheme playbook, and would be the equivalent of paying your Master Card bill with your Visa.”
The study found that the average American taxpaying family has invested roughly $800 in the auto bailouts so far. Moreover, the study found, the government support poured into General Motors, Chrysler, and GMAC – the financing subsidiary that supports sales at both – now stands at a towering $78.9 billion. Given that figure, and an estimate of how many vehicles GM and Chrysler will sell through the end of 2010, the study finds that each vehicle one of the bailed-out companies sells costs taxpayers $10,700.
Finally, breaking down the costs by company, the study reports that every Chrysler vehicle sold costs taxpayers $7,600, and every GM vehicle sold costs taxpayers $12,200.
The research is based upon a November study released by the Government Accountability Office (GAO), entitled “Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM,” a follow-up report on the “Troubled Asset Relief Program,” as well as statements and reports released from the U.S. Treasury.
Additional Findings Include:
- GMAC receives government guarantees not available to most private firms. Coincidentally, these are the same private firms that are forced to compete with GMAC’s taxpayer-assisted bank, Ally Bank.
- These guarantees save GMAC about $500 million annually in interest costs.
- During the first ten months of 2009, GM and Chrysler sales fell further than other major auto producers, down 33.4 percent and 38.9 percent, respectively.
- While the prospect of repayment of GM and Chrysler loans might be expected, after bankruptcy the vast majority of the bailout funds are no longer legal obligations of the newly-structured GM and Chrysler.
- If Americans are to believe public officials’ claims that the government will eventually reprivatize the auto industry, the necessity of a thoughtful exit plan is essential. However, at this time no such plan exists, making it likely that the Treasury will not recover its investment.
“The bailout has created moral hazard problems, inadvertently handicapping the progress of stronger, non-subsidized producers,” Professor Hopkins concluded. “The problems extend beyond just the auto industry, as favored status for one financial company and its bank necessarily complicates prospects for non-subsidized rivals. The time has come to stop such bailouts, and in an orderly way, to seek at least some recovery for taxpayers.”