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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