Thursday, June 14, 2012

The truth about the auto industry bailout

I've written before about the disastrous US auto industry bailout of 2008-10.  I've always regarded it as a flagrant, wholesale trashing of US law and juridical precedent by the Obama administration in favor of their political allies in the United Auto Workers union.

Now a new study by James Sherk and Todd Zywicki confirms that understanding.  In a summary article in the Wall Street Journal, they report:

The preferential treatment given to the United Auto Workers accounts for the American taxpayers' entire losses from the bailout. Had the UAW received normal treatment in standard bankruptcy proceedings, the Treasury would have recouped its entire investment. Three irregularities in the bankruptcy case resulted in a windfall to the UAW.

. . .

We estimate that these three irregularities increased the cost of the bailout by $26.5 billion. The Treasury expects the auto bailout to ultimately cost taxpayers $23 billion. The funds diverted to the UAW account for the taxpayers' entire net loss.

Avoiding these losses would have been straightforward. If the government treated the UAW in the manner required by bankruptcy law, it could have given the stock and promissory notes to the Treasury instead of to the UAW. Labor cost savings and not supporting Delphi pensions would have increased the value of the taxpayers' shares of GM, while GM would have needed less financing.

Instead, President Obama gave over $26 billion to the UAW — more money than the U.S spent on foreign aid last year and 50% more than NASA's budget. None of that money kept factories running. Instead it sustained the above-average compensation of members of an influential union, sparing them from most of the sacrifices typically made in bankruptcy. Such spending does not serve the common good. President Obama did not bail out the auto industry. He bailed out the United Auto Workers.

There's more at the link.  The authors' report may be viewed in summary form here, and downloaded in full (in Adobe Acrobat .PDF format) at the same link.

(In related news, the Delphi Salaried Retirees Association (DSRA) announced a few days ago that it had received the first tranche of some 62,000 documents from the US government concerning the bailout, which cost the DSRA's members most of the value of their pensions.  The DSRA has fought for years to force the government to provide this documentation, which it believes will validate its claim that its members were unfairly, unjustly and illegally treated as part of the bailout.  I believe the available evidence supports the DSRA's claims, and I hope it will be successful in achieving justice for its members.)

In 2009 I promised:

I shall never again buy any new Chrysler or General Motors vehicle or other product, unless and until the issues raised by their bankruptcies have been resolved in accordance with the current (i.e. today's) law of the land, and any and all benefits unjustly accruing or unfairly transferred to political stakeholders have been nullified and withdrawn forever.

I've so far seen nothing to make me reconsider my decision.  This wasn't a 'bailout'.  It appears to have been nothing less than cynical, bare-faced robbery from the public purse for the benefit of the Obama administration's political allies.  I believe that all those responsible should face charges, and go to jail if convicted.  Furthermore, if GM and/or Chrysler eventually go bankrupt anyway, I submit that would be no more than poetic justice - albeit costly.

I can only hope that the same will happen, sooner rather than later, to the UAW.  On the basis of the evidence currently available, it appears to deserve no better.



perlhaqr said...

This wasn't a 'bailout'. It appears to have been nothing less than cynical, bare-faced robbery from the public purse for the benefit of the Obama administration's political allies.

"I'm shocked to find gambling going on here."

SiGraybeard said...

The aspect about this that has bothered me the most, madder than anything, was not just that corporate bond holders were screwed so the money could go to the UAW, but that the Supreme Court upheld it.

These top bond holders had contracts that were supposed to protect them, yet the executive branch screwed them, paid the UAW, and the Supremes said "it's all cool".

The fact that the case that reached the Supremes came from Indiana teacher's union adds a thin layer of irony, but the nullification of contract law removes any enjoyment.

Without rule of law we can not work as a nation.

Anonymous said...

I agree that no one should buy a car from Government Motors or Chrysler ever. Robbery is not what happened here. This was a blatant political payoff by OBUMER.