- Bailing out GM has cost taxpayers $7B in realized loss and $19B in unrealized loss
- GM is a zombie company that should have been allowed to die and rise again
- Winners: GM’s employees and pensioners, vote-buying politicians
- Losers: taxpayers, GM’s future
When GM was bailed out during the financial crisis, first by Bush, and then by Obama, I was disgusted. GM is a company that is fatally structured and needed to die in order to be reborn again in a form that would allow it to succeed. As sorry as I feel for the employees of GM who would have lost their jobs, and the pensioners who would have lost all or part of their hard-earned retirements, a bankruptcy needed to happen. The debt and long-term obligations aren’t sustainable – then or now. GM can’t be competitive with these fatal anchors around its neck. Without restructuring this ship will eventually sink.
All of this got lost in the haze of the GM IPO. President Obama made it sound like a victory for taxpayers, and I’m betting a lot of people believe the spin. I knew the GM bailout would be costly, I just didn’t know how much. One of the smartest economists I know, Jim Anderson from Silicon Valley Bank, did a great post on exactly how much: $7B in real loss and $19B in unrealized loss.
Let’s face it – the bail out was nothing short of buying votes (by both parties). The bailout was bad for GM as a business and bad for taxpayers. The winners were GM employees and pensioners, and the politicians who bought votes with taxpayer money. (Note: the $7B hard loss equates to $33,493 for each of GMs 209,000 employees).
GM is a zombie company now – hamstrung by the UAW, pensioners, debt and partial government ownership. It won’t be able to make the hard decisions necessary for long-term success because it has too many constituents. It will never be competitive in today’s competitive automotive industry until it sheds its fatal overhead. Letting GM go into bankruptcy would have been excruciatingly painful for GM’s employees and pensioners, but it would have given the company a chance to survive and employ generations of future automakers. What will happen now is a slow death by strangulation, and very likely a series of government bailouts to soften the landing of the pensioners and employees who will most certainly get hosed.
The solution is simple but painful: let the zombie die the next time it becomes insolvent, deal with the political pain, and hope the company can rise again by regaining some of its once great innovative mojo.
There is only one industry I think the government should ever consider bailing out – banks. I will discuss this in a future post.