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Cash for Clunkers as failed CPR for the auto industry, or: look, folks, a lot of your money is not coming back

Despite all the hoopla over the supposed economic success of Cash for Clunkers [you don't need links for that, just go check all the usual suspects], WaPo reports today that a Congressional oversight panel says--surprise, surprise--we're not going to get all the auto industry bail-out money back:

The federal government is unlikely to recoup all of the billions of dollars that it has invested in General Motors and Chrysler, according to a new congressional oversight report assessing the automakers' rescue.

The report said that a $5.4 billion portion of the $10.5 billion owed by Chrysler is "highly unlikely" to be repaid, while full recovery of the $50 billion sunk into GM would require the company's stock to reach unprecedented heights.

"Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount," according to the report, which is scheduled to be released Wednesday.

The report also recommended that the Treasury Department act with more transparency and provide a legal analysis justifying the use of financial rescue funds for the automakers. The report was prepared by the Congressional Oversight Panel, which is overseeing the federal bailout programs.

In all, the government has invested $74 billion in the nation's auto industry, including $12.5 billion into auto financing giant GMAC and $3.5 billion into auto suppliers, according to the report.


But it's OK, you see, to have thrown the money out there to support two gigantically mismanaged companies after all:

The panel said the government may have averted economic catastrophe by taking on the rescue. The automotive industry represents about 6.5 percent of the manufacturing jobs in the United States.

"Preserving portions of Chrysler and General Motors might have resulted in savings for the government in other ways," the report said.


We need to be clear about this little bait and switch comment: The automotive industry represents about 6.5 percent of the manufacturing jobs in the United States.

According to the Congressional Research Service, GM and Chrysler account together for less than 40% of the automobile industry employees in North America [US plus Canada], and so--even had both companies failed so completely that everybody lost their job all at once--the result would impact 2.6% of the manufacturing jobs in the US, not 6.5%.

Since it is not like GM and Chrysler weren't selling any cars at all, the other companies would very probably have seen significant upsurges in their own sales and need for new production capacity. Unfortunately, the government decided to privilege GM and Chrysler over the other companies for what we now know was a free-money give-away.

I love it when we get spun: Yep, we almost certainly dropped billions of your tax dollars into GM and Chrysler that we'll never get back--and we're not even real certain where they went--but we did it to avert disaster and it worked, so be happy.

Comments

What I find most disturbing about this program is that it essentially created false demand: demand that probably would have come about of its own course in a matter of time.

Also, all of these people with car payments now will probably be cutting down on their holiday and back-to-school spending.

It created a momentary influx of cash for some (I'm thinking of blogger Alphecca who was able to catch up on some bills due to the commissions), but now that has dried up.

Cash for Clunkers was actually one of the least insidious of the various bailout programs, but I don't think shock treatment is going to work for this economy. It never lasts.
Cars4Charities said…
There are many better ways to stimulate car sales. One way is to simply increase the tax deduction one can take when they donate a car to charity. Most car donations come from people who are purchasing a new or newer car and don't want the hassle of selling or trading their old car.

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