Obama’s Auto Bailout Lies

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The details were truly odious. For example, Chrysler’s “secured creditors,” who should have been first in line in any legal bankruptcy proceeding, were given 29 cents on the dollar, while lower priority union creditors received 40 cents. UAW retirees at Delphi, GM’s auto supplier, got 100 percent of their pension and retirement benefits, while 21,000 non-union, salaried employees retained only 30 percent of their pensions, and none of their life and health insurance. GM will be allowed to deduct up to $45 billion of its previous losses from its future profits, even though in a typical bankruptcy a new company is not allowed to take a tax write-off against the old one. GM’s secured creditors were also denied a “deficiency claim”–meaning that the bankrupt company has to pay back at least a portion of what they are owed at a later date–to which they were entitled.

This flouting of the law was one of the more pernicious aspects of the auto bailout success fairy tale. The administration’s principle claim for the bailout, a total of $85 billion in taxpayer subsidization, was that the capital markets were “frozen,” meaning GM and Chrysler couldn’t get private funds necessary to continue operations. Whether that’s true or not cannot be proven. Much like the bank bailouts, Americans are forced to accept what occurred, not what might have happened. Yet by establishing the idea that bankruptcy laws were now “subjective,” the Obama administration has virtually assured future lenders that the rule of law may no longer protect them.

Then there is “profitability.” The administration is touting GM’s return to profitability as proof the bailout was resounding success. GM did in fact make $3.2 billion in the first quarter of 2011, its best performance in ten years and its fifth-consecutive profitable quarter. But $1.8 billion of the $3.2 billion is the result of one-time-only sales of its shares in Ally Financial and Delphi. Furthermore, GM and Chrysler’s post-bankruptcy labor costs are $58 an hour, compared to $70 an hour pre-bankruptcy. While these numbers are comparable to Toyota’s labor costs of $56 an hour, the industry’s cost curve is being set by firms such as Hyundai and Kia, whose labor costs are $40 an hour. In addition, due to the finagling of bankruptcy laws in favor of the UAW, GM still has unfunded pension obligations of $27 billion that are due in 2014–meaning it is quite possible bankruptcy has merely been postponed.

And there is the so-called 800 pound gorilla of taxpayer bailouts that makes any reference to the word “profit” laughable. In its report to Congress this month, the Treasury Department was forced to boost its estimate of government losses in the bailout by $170 million from $23.6 billion to $23.77 billion. This follows a boost from $14 billion to $23.6 billion last fall. Treasury spokesman Matthew Anderson was undeterred. “The auto industry rescue helped save one million jobs and is still projected to cost dramatically less than many had expected during the crisis,” he said. Perhaps, as is often the case in Washington, D.C. less-than-projected losses constitute a “profit.”

So was the auto bailout a success? Once again the ideological divide looms large. For those who believe in the use of taxpayer funds to underwrite private companies “too big to fail” (thereby virtually assuring a return to risky and/or irresponsible behavior); the abandonment of the rule of law for the “greater good;” the distortion of the free markets for political considerations (government picking winners and losers) and the seemingly limitless expansion of executive power absent congressional input, the answer is yes.

For those who believe in free-market capitalism tempered by the proper amount of government intervention to reduce cronyism and cheating, the necessity of badly run companies to go bankrupt in order to rein in risky behavior or unreasonable labor costs — and the idea that 300 million Americans acting in their own best interests have far more wisdom than arrogant government bureaucrats operating a command-and-control economy from Washington, D.C. — the answer is no.

In other words, among the myriad number of issues facing Americans in the 2012 election, the definition of the word “success” is also up for grabs.

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  • http://www.lysanderspoonerlawschool.org Kenneth Olsen

    Obama's grand theft of bondholder assets is an impeachable offense.

    • Spider

      Obama basically stole GM from it's rightful owners (the bondholders and stock owners) First he propped up the company with taxpayer money and then handed the company over to his buddies at the UAW . After he is run out of office he should get federal prison..

      • http://www.mittromneyjobcreation.com/ James

        That's not really accurate. The UAW ended up with the financial burden of healthcare costs. This was one of the supposed crippling costs being taken on by GM.

  • http://apollospaeks.blogtownhall.com/ ApolloSpeaks

    Obama no more saved the US auto industry from catastrophic collapse than he saved the US economy from a second great depression. Lie as he may about his historic accomplishments the wannabe savior of the world won't be able to save his job on election day.

  • Amused

    Thanks Ahert , you have finally stated a truth GW , initiasted the bailouts , and yiou call it what ? "An end run around Congress " ? It doesn't matter WHEN the automakers were in trouble , Bush and Republicans initiated the bailout loans . ALL of them . LOL…and that after causing the economy crash which was started and in progress ;ong before Obama took office .
    Are we going to bite Bush now , for the sake of attacking Obama ? Be carefull there Ahert , you're liable to kill your scapegoat .
    As for YOU AppolloSpeaks , you're just as much the phony as little Arnold . But you people can't have it both ways – discrediting Obama for the bailouts that Bush initiated [with the help of fellow RepoCons ] then blaming him for the very cause of the bailouts . Talk about LIARS . Get your head screwed on right .

    • Mike

      Amused, the Republicans in congress helped Bush with the bailouts??? Explain to all of us how they did that when Bush was sitting over a democratic Senate and a Democratic House of Representatives……we're waiting.

  • Ken

    Ah, yes, the anti-Semite lectures about the truth. Very laughable!!

  • davarino

    I wont buy GM or Chrylser. Maybe the government can buy all their cars. Why would a manufacturer concede to not close any plants and not run less than 80% capacity. Thats just like what happened to Boeing, wasnt allowed to open a plant in SC. What has this nation come to? No more freedom, unless your union

  • sedoanman

    "Why is the president touting his lawless union payoff as one of his administration's 'success' stories?"

    C'mon. Do you expect him to go into the campaign with nothing to show for the last 3+ years? Therefore, he HAS to spin SOME of his efforts into success.

  • BLJ

    Simple: He is lying sack of feces. The auto bailout and stimulus program was the biggest robbery of the taxpayer in history.

  • lisa

    Is there a perfect politician no; but this president has done much for american quit being haters

    • BLJ

      Put the pipe down.

  • tanstaafl

    GM should have filed for Chapter 11 years ago.

  • Alex Kovnat

    The reason why GM and Chrysler were nearly if not actually bankrupt and that Ford was bleeding cash, was at least partially due to government demands for more and more fuel economy and ever more stringent safety demands as well. And unfortunately the demands for more and more doodads on other people's cars, just keep on coming. For example, you would think it would be enough that cars are required to meet a 50+ MPG corporate average fuel economy demand. But now, we are hearing proposals that cars also be required to be able to run on gasoline, methanol, ethanol or any combination of these. With all these constant demands for more and more doodads on other people's cars, is it any wonder when automakers have to be "bailed out?"

    • http://www.obamaftw.com/blog/ James

      "at least partially due to government demands for more and more fuel economy and ever more stringent safety demands as well"

      So shouldn't the Japanese auto makers have also found themselves in the same boat? After all, their government has even stricter standards.

  • Auto Guy

    Actually, YOU (and other who buy into the "devaluing dollar conspiracy") need to understand how nominal vs real wages work. Yes, the dollar becomes devalues and 'more dollars' are circulated in the economy, but our wages all go up. The problem is that the gains in GDP have all gone to the top 1%. The dollar is working just fine for them, because all of our hard work is going disproportionately to them, and our real wages are actually falling over time. Thank Reagan and his puppet masters (now the puppet masters of Fox News and the Tea Party)..