GM bailout a success?

Still think the bailouts of GM and Chrysler were a success? Still think that, just because GM now has posted its fifth straight profitable quarter, and its best quarter performance in 10 years ($3.2 billion), that justifies the billions of dollars in taxpayer money that went into making that happen? Still think we all got a deal when the government sold a chunk of its auto stock recently?

I’ve let this one percolate for a few days now, but it’s clear some are going to use this as a campaign issue in coming months.

Look at this report from the non-partisan Government Accountablity Office. The GAO studied the bailouts and found that, while taxpayers have recouped 40 percent of their investment, the government still has to maximize taxpayer’s returns and get out of the car business as soon as possible.

Here’s how the report puts it:

“… for Treasury to fully recoup its investment, GM’s share price will have to increase from the $33 Treasury received in the IPO to an average of over $54–a higher price than industry analysts estimate over roughly a 6 to 18 month period. Chrysler’s value would have to grow above historic levels for Treasury to recoup its investment. In divesting from the companies, Treasury may find its interest in exiting as soon as practicable at odds with the potential to increase taxpayers’ return by waiting for the remaining shares to rise in value.”

Let’s be clear about something. A lot of critics of the bailout never said it wouldn’t save GM or Chrysler. That wasn’t a worry. Clearly, the federal government has the funds available to save just about any company it wants, or to help that company navigate bankruptcy and restructuring. No, the concern has always been about the costs to the rest of the economy.

The Cato Institute’s Daniel Ikenson has made this point in his blog posts. In this one for Forbes.com, he argues that not bailing out GM would have led to about the same number of job losses, but without the other costs.

Here’s part of what he argues in an earlier post:

“Yes, GM is making sales and accounting for market share, but only at the expense of the other automakers.　Had GM been forced to severely atrophy or liquidate, the other automakers would have had greater revenues, more market share, and probably higher profits). They would have been able to attract GM’s best engineers and line workers. They would have more money to invest in R&D and to lead the industry into the future. Instead, by keeping GM in the mix, some of those industry resources remain misallocated in a company that the evolutionary market process would have made smaller or extinct.

“The auto industry wasn’t rescued with the GM bailout. GM was “rescued.”　By rescuing GM, the government overrode market forces, and there are significant costs to assign for that. Witness the stagnant economy with 9.6 percent unemployment. Is it not plausible that businesses are sitting on their cash and not investing or hiring because of the fear inspired by the government interventions starting with the bank and auto bailouts? It’s more than plausible. The regime uncertainty that persists to this day was spawned by the GM bailout and other interventions.”

Evidence exists that the TARP bailout was necessary to keep banks and other financial institutions safe from irrational panic among investors. But the auto bailout — as difficult as it was to confront at the time — was not a good investment, GM’s success notwithstanding.