Nearing the End of Government Motors

After selling 200 million shares of GM stock in December, the U.S. government owns only 19% in the carmaker and plans to sell the remaining 300 million shares by early 2014.

This shouldn’t come as a surprise to those who’ve followed the GM saga. The December sale cemented a loss to taxpayers of around $12-13 billion, but it was certain to happen after the election. The story isn’t receiving a lot press, however, and the exit will no doubt be hailed as a triumph of government intervention when all is said and done. The remaining sale will quietly cost us another ~$15-20 billion–depending on the stock price–and will be completed well before the midterms. While I strongly favor the government’s liquidation of GM shares, anyone who thinks the process was coincidentally nestled between the 2012 and 2014 election cycles fails to understand the political nature of the bailout.

The sale of GM shares will mark the end of a costly and unnecessary infusion of politics in the private sector. Supporters will argue that millions of jobs were saved, but this analysis remains both convenient and illogical. They will never provide a convincing calculation for the number of “saved jobs.” They will continue to incorrectly assume that GM would have dissolved without a government bailout. They will fail to recognize the costs associated with the bailout and the ongoing support for the carmaker, including such measures as the $7500 subsidy for purchases of the Chevy Volt.¬†And they will never see the jobs that might have replaced those at GM and the products those workers might have produced if GM had downsized through a normal bankruptcy.

Unfortunately, the real costs extend far beyond the GM bailout. Rather than focus on satisfying customers in a highly competitive marketplace, executives have learned that political partnerships can have a lot more to do with long term survival if you’re too big too fail. And while we’ve been told that bailouts won’t happen again, they can and will whenever the political winds blow in the right direction.

The irony here is that free enterprise always takes a hit when Washington takes sides in the private sector. We are told that capitalist greed and mismanagement wreak havoc on the middle class, and government must step in to save the day. Yet, many overlook the political corruption and regulations that dictate business activity in the first place. Whether its auto production or the banking sector, firms are not entirely free to make their own hiring and production decisions anyway. In other words, Washington often intervenes to solve the very problems it creates, at a net cost to taxpayers. This is a more difficult case to make than the emotion-laden “save American jobs” pitch, but it is the one that must be made going forward if we are to produce the kind of productivity and growth needed to save our economy over the long term.

9 thoughts on “Nearing the End of Government Motors

  1. Most people don’t understand the GM debacle. It’s about unions, not jobs. When it’s over, what will be the cost for each job saved?

  2. Looking back I think the bailout was a good move. Lots of workers at GM and suppliers would have lost their jobs if GM went under. I’d rather the government not be involved, but this was the right thing to do.

  3. Hey Jerry, you can’t look back on a government bailout and decide if it was the right thing to do because you think it worked. It was wrong on principle, and principle always works in the long run. Besides, GM would not have gone under without a bailout. This misunderstanding just won’t go away.

  4. You can’t consider the bailout a failure now. It cost a lot of money, but the economy was on the brink of disaster when Obama steeped in. Everyone forgets how bad it was when Bush left office. He didn’t have a choice.

  5. Well, it seems that Capitalism is not perfect. After the owners/management of GM brought it to the edge of catastrophe, it was the government that was called to clean up the mess. Now that the government is starting to get return on its investment, it’s getting out. The government has no desire to manage a private business.

  6. what are you talking about aliza? Companies fail all the time in a capitalist system. What return on investment? The government lost $100 billion in the bailout. Get your facts straight. You’re only right about the government not wanting to manage a private business. it doesn’t know how, just look at amtrak and the post office. it certainly can’t manage it’s own budgets. Besides, it’s easier to tell private companies what to do and blame them for society’s problems than to actually run one of them.

  7. The fundamental issue is the definition of the word bankruptcy. Dr. Parnell. you’ve been over this 100 times, yet folks like Bert, Aliza and Jerry still don’t get it. Study what a bankruptcy is. GM would not have closed. Millions would not have lost their jobs. The President and others saying so was political rhetoric and scare tactics. They are good at that.

  8. From what I learned about bankruptcy I know that there are two types of bankruptcy: chapter 11 reorganization, which allows the company to continue operation, and chapter 7 filing, which liquidates the company. How do you know that without the government bailout, GM would not have filed for chapter 7?

    1. Point of clarification: GM filed for chapter 11 protection in June 2009. Without a bailout, the firm would have been restructured, not liquidated. Chapter 7 would have been possible only if the restructuring was unsuccessful, but this was not a consideration at the time of the bailout.

Leave a Reply

Your email address will not be published. Required fields are marked *