Conservatives viewed the 2009 automaker bailout as an unnecessary example of “big government” spending—Republican presidential hopeful (and professional gaffe machine) Mitt Romney once penned a diatribe against domestic automakers entitled “Let Detroit Go Bankrupt,” for which Democrats are hammering him. But the whims of the free market aren’t always a clear-cut example of “us versus them.” In a view that’s surely going to incite debate, some economists say that the $80 billion rescue was a necessity.
With the financial system in shambles, there was no private capital to step in and fill the void. For General Motors and Chrysler to enter bankruptcy proceedings, they needed billions of dollars from the private sector—money that simply wasn’t available.
The only answer, then, was a cash injection from the government, which was a controversial decision from the start. It wasn’t known how soon Chrysler and “Government Motors,” as GM was nicknamed, would pay off their loans, if they even would. Public support of the bailout in 2009 reflected this: According to a Pew report, 39 percent of Americans thought that the bailout was a bad idea—especially coming so soon after the even larger bank bailout.
Gary Burtless of Brookings Institution is one of these economists that certainly believes in the necessity of the bailout. “There was no creditor in the private sector that could step up with the amount of money that Chrysler and General Motors needed if they were to keep on functioning,” said Burtless. “The only outcome if the government didn’t step in was that those companies were going to be liquidated.”
What would have happened if GM and Chrysler had gone bankrupt? “[They] would have been forced to cease production, close their doors and lay off virtually all workers once their coffers ran dry,” said Steven Rattner, Obama’s leading auto industry adviser and holder of the odious nickname “Car Czar.”
Some reports at the time trotted out spectacular figures for potential job losses—a quarter million jobs across the country; others estimated 275,000 just in the Midwest. Almost every major supplier would have to downsize or close, and businesses tangentially related to the auto industry would contribute to the downward spiral. “Those shutdowns would have reverberated through the entire auto sector,” said Rattner, “causing innumerable suppliers almost immediately to stop operating too.”
Or, maybe not. Daniel Ikenson of the Cato Institute is one of the economists that believes that even with GM’s and Chrysler’s losses, we would have found a way: “Both those companies had huge assets. They could have been sold. Their market share would just have gone to other companies.” Plenty of other companies could have stepped in to fill the void: Ford would regain domestic market share, and foreign companies like Hyundai and Toyota could employ the laid off in new factories.
“The companies didn’t enter bankruptcy by themselves, they were escorted to bankruptcy,” said Ikenson.
Today, of course, we know that GM and Chrysler have returned to a semblance of profitability, with a spate of new vehicles (as well as an excuse to kill off Saturn). Chrysler’s 2011 sales ended at $183 million for the year, reversing a loss of $652 million just a year earlier. And General Motors touts how it has paid off $8 billion worth of loans ahead of schedule, a claim that hasn’t come without contention.
Likewise, this argument isn’t going away anytime soon—especially in an election year, and in today’s cutthroat political environment. Romney and Santorum will continue to push their GOP-aligned, anti-bailout viewpoints, even as they seek votes from the very same people that would have been rendered jobless. The White House will continue to claim that the bailout was not only a success, but a necessity. Certainly economists from vaunted institutions may lend these claims some credence.
But the American public has eased its scorn of the bailout. That Pew survey? It now shows that 56 percent now believe that the bailouts were, in fact, a good thing. GM supporters are in our midst. Heck, some of them might even own a couple of Cadillacs.