Good Thing We Didn’t Let Detroit Go Bankrupt


It’s a good thing we didn’t Let Detroit Go Bankrupt as Mitt Romney once advised.

According to the Center for Automotive Research, the U.S. bailout of the auto industry was the most successful economic intervention in our nation’s history.

In a new study, CAR says the government will likely end up with a loss of $11.8 billion on the $50 billion it pumped into GM. But CAR also estimates that saving GM alone saved 1.2 million jobs in 2009 and an additional 674,000 in 2010. If the automaker had shut down in January 2009, when it was pleading for government help, hundreds of suppliers would have done the same, CAR notes.

The loss of those jobs would have taken $79.5 billion in personal income out of the U.S. economy in 2009, and $49.7 billion in 2010. The government would also have lost billions in lower social security receipts and lower person income tax revenue, and had higher spending for transfer payments.

We’ve heard most of this before, but the CAR goes as far as to say that, had we not bailed out Detroit, the entire Midwest would have entered into a “depression era” economy.

The U.S. government sold its last remaining stock in GM today. The federal government is no longer a GM shareholder.

General Motors North America President Mark Reuss says the bailout allowed tens of thousands of people to “put food on the table,” which makes him some kind of diabolical socialist I guess.

This entry was posted in Economy and tagged , , , , . Bookmark the permalink.
  • joseph2004

    This evening, CBS Evening news added yet another report from economics and business correspondent Anthony Mason. This time it was on the GM bailout and the US loss of $11 billion on GM stock. Characteristically, Mason’s report left a lot of questions unasked. He interviewed the absolutely wrong person – Obama’s then car czar Steve Rattner – about the effects of the bailout, and of course Rattner rattled off the too often unchallenged notion that 1 to 1.5 million jobs would have been lost “instantly” had GM not been bailed out, and of course Mason sat there like a mushroom and simply accepted that answer.
    Folks, what happens when a big player such as GM leaves the arena? Here’s what: Other players, some big, even some small, rush in to fill the vacuum. Was America losing “its” auto industry? Seems to me not. After all, there was Ford, right? And half a dozen other major players, all building cars here in America, that would have wasted absolutely no time filling the void. It is just not the case that anyone can say with any credibility that 1 to 1.5 million jobs would have been lost. It’s a political calculation, not an economic or business calculation, that came up with those numbers.
    On top of that, Rattner himself has written since that stomping all over bankruptcy laws, cheating lenders, and gifting Union workers who had no right to own any part of the company, was, in his estimation, “good policy.”
    It’s great that GM has come back, but whether it has changed enough culturally to avoid another crisis down the road is still not settled. I hope it survives, but whether it does or not, GM having gone away would not have killed the US auto industry, it’s doubtful anything near a million jobs would have been lost, and maybe some of the smaller, more innovative car companies smothered historically by GM and others might have had a chance to thrive. But we’ll never know.

    • Christopher Foxx

      So you’re saying that when the American automotive industry was in such dire straits that the largest company was going to go belly up, that the other car companies would have been in such good financial state that they could undertake a sudden and huge expansion?

      Can I have some of what you’re smokin’?

    • muselet

      Folks, what happens when a big player such as GM leaves the arena?

      What would have happened is that every supplier to the auto industry worldwide would have had to lay off workers and reduce production because of lost demand. That would have raised costs for the remaining car companies, which would have raised prices for consumers, which would have cut car sales, which would have caused the remaining car companies to lay off workers and reduce production, which would in short order have finished off Ford and most of the rest of the car industry, which would have precipitated an even larger economic downturn.


      However, just for the sake of conversation, let’s say those mythical “smaller, more innovative car companies” had suddenly been magicked into existence—complete with designers and engineers and assembly lines and, crucially, type-approved cars—the microsecond GM had slipped beneath the waves. Are we also to assume that suppliers and distribution networks and dealerships and trained mechanics would also have been magicked into existence? Or do you think these “smaller, more innovative car companies” you posit would have used surplus GM bits, only arranged slightly differently?

      No, we’ll never know what would have happened if GM had gone out of business, and that is a very good thing.


      • IrishGrrrl

        It’s all magick, don’tcha know! Just a wave of a Paultard’s magical free market wand and an entire car company will appear perfectly poised to immediately fill the GM void, like some kind of replacement organ, except without the surgical team, the IV and drugs, and the actual hospital.

        • Christopher Foxx

          Actually, joseph2004 is correct that something would have moved in to fill the void left by GM. The demand for convenient, personal transportation would continue to exist and something would have moved into the market to meet that demand.


          He’s completely off base on his “they’d rush to fill the vacuum” idea. Things would have gone very much as muselet described with a domino effect causing massive economic destruction and it would have been years, probably measured in a decade or two, before things had fully recovered.

          But why acknowledge the reality of a generation of economic struggle when you can believe in magik car fairies who solve problems overnight?

    • Lady Willpower

      “I hope it survives,”
      Just as long as Obama doesn’t get any credit for it.

      “but whether it does or not, GM having gone away would not have killed the US auto industry,”
      I’m curious what your definition of “killed” must be.

      “it’s doubtful anything near a million jobs would have been lost”
      You base this on…?

      “and maybe some of the smaller, more innovative car companies smothered historically by GM and others might have had a chance to thrive.”
      MIGHT have?

      “But we’ll never know.”
      Ahhh, we’ll never know. You’re not making any assertions. Just asking questions. JUST ASKING QUESTIONS.