The success of the auto industry bailout

THE SUCCESS OF THE AUTO INDUSTRY BAILOUT…. It’s been about a year since the Obama administration intervened to rescue GM and Chrysler, and at this point, far-right apoplexy notwithstanding, it appears the rescue efforts have been surprisingly successful.

Steven Rattner, the former lead auto adviser for the Obama administration, has a compelling piece today making the case that both auto industry giants are turning the corner, thanks to government intervention.

How did this happen? First, the bankruptcies — terrifying to everyone — succeeded in wiping vast liabilities from the companies’ balance sheets, more than $65 billion in the case of GM. The government task force that evaluated the industry leaders — of which I was a part — also insisted on a cold-blooded look at operating costs. Tough, conservative projections replaced years of rosy-scenario forecasting. As a result, GM cut its North American expenses by $8 billion per year.

In overseeing the restructurings, we insisted that assumptions about sales be very conservative. We wanted GM, which used to need to sell 16 million vehicles a year in the United States just to break even, to be profitable at volumes as low as 10 million. Happily, annual sales are running above 11 million and are likely to keep climbing. Accordingly, what would have been losses at “old GM” are now profits at shiny new GM.

The taxpayer money the industry received is being paid back, and the cash reserve we provided GM was left untapped. Rattner added that the manufacturers “outperformed our expectations,” which in turn will increase the “amount of money that the government is likely to recover.”

This is, of course, exactly how the process was supposed to work. It’s how the process has always worked when the federal government bails out key national industries.

A year ago, the Monthly‘s Phillip Longman argued that “any honest reading of history suggests that the federal government has quite an impressive record of rescuing institutions considered too big to fail.” It does, indeed. When the government bailed out Lockheed in 1971, the company thrived and taxpayers profited. The government bailed out Chrysler in 1980, and saw similar results. The government bailed out the railroad industry, and saw it flourish.

In each case, the government spent lots of taxpayer money, used bureaucrats to engineer the revival of an industry, recouped the money, and produced a success story. Conservatives howled in every instance, but as is usually the case, their complaints and dire predictions were wrong.

After Obama intervened to rescue auto manufacturers a year ago, the right insisted it was an example of his purported desire to be a communist dictator. Twelve months later, his efforts look pretty smart, and his detractors’ apoplexy looks pretty foolish.

For that matter, the conservative theme of the year is that government spending is the single most odious phenomenon in the known universe. And yet, it was government spending that prevented a depression, and it was government spending that rescued the American auto industry.

Maybe the right can pick something else to complain about? This talking point isn’t working out well for them.