Democrats, and President Obama specifically, like to tout the bailout of the automobile manufacturers as one of the biggest victories for Leftist economic policy. They like to point out that prior to the federal government handing nearly $50 billion over to General Motors the American car company was on the verge of bankruptcy and now is on the verge of leading the way to a booming economy. The truth of the matter is that, yes, there has been some profits scored by General Motors, but those profits were not the product of the bailouts and what has been generated by the bailouts has not put the car company near paying back what was handed out to them in early 2009.

For starters an Associated Press report from February of this year notes that the federal government still owns just over 25 percent of the company despite the record setting earnings and the slight increase in share price GM has recorded. Also, Jeff Karoub at Businessweek reported that GM plans to freeze the pension plans for white-collar, salaried employees and use annual bonuses to hold down expenses as opposed to restructuring the pension plans with its blue-collar, union employees which is where much of the expense actually comes from. But wait there is so much more.

The union employees' pension plan, while creating a massive expense problem for GM, received just over half of what the government paid in the bailout. According to Edwin Feulner, PhD, at the Heritage Foundation, the auto bailout was actually more of a United Auto Workers bailout. And the UAW is why car companies like GM had such a tremendous expense issue after the market tanked in 08.

When you calculate the total cost of labor for UAW employees, meaning salary, medical, and pension benefits, the average cost per hour at GM is $70.51 per employee. The reason being, according to Feulner, is because the retirement and health benefits for union employees are so generous. This is why, instead of restructuring the non-union, salaried employees' benefits that make up a small portion of the expenses GM has to worry about, they should have restructured the benefits agreements with the UAW to bring those costs down. Unfortunately, as is demonstrated with other unions, particularly public sector unions, the idea that they should be the ones to bear the brunt of economic hardships is beyond the pale no matter how much they may be the primary culprit behind such hardship. This is why the government came to the rescue with $50 billion in total for the bailout and $26 billion specifically for union pensions.

Yet, the Democrats continue to tout the bailout as a success for the industry and for the taxpayers. However, along with the gruesome details of who actually benefited from the bailout, the taxpayers are still owed $25 billion according the Washington Post's Zachary A. Goldfarb. He explains that recouping that money is not going to be easy and may have led to government directed closings of car dealerships to save costs. The share price of GM is about half what it needs to be for the government to recoup what was “loaned” to the auto manufacturer and the financial arm of GM, Ally Financial, is still in the red to the sum of $12 billion. And, yes, while the industry appears to be hiring and making profits, it is still down 12 percent in overall employment compared to before the market bust in 2008.
For just a bit of a contrast to government intervention, take a look at how Ford Motor Company handled the exact same problems that GM faced when they were turned into Government Motors. Going back to Feulner at the Heritage Foundation, he explained that Ford declared bankruptcy in 2007, a full year prior to the actual market crash, and restructured its assets and liabilities. What did this accomplish? By doing this, Ford did not need to participate in the bailouts and was the first US auto manufacturer to show profitability during the recession and the slow “recovery”. They acted within the bounds of free-market ideas and have benefited everyone involved from the blue-collar employees to the taxpayers who did not have to bail them out.

President Obama has stated that the auto bailouts serve as an example of what he would like to do to the rest of the manufacturing sector in the US. If by that he means to socialize the manufacturing industry, then yes the auto industry is the blueprint for “success” in Obama's brave new world. But if he is speaking from an economic benefit point of view, then perhaps the president that everyone on the Left claims is the smartest we have ever had needs to go back to college and take some economics classes. Oh, wait, I forget. College is exactly where he learned how to do this.


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