Taxpayers’ Auto Bailout Losses Mounting

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Pritchett's Pen: Discovery Space Shuttle Joins Cash for Clunkers Program

Taxpayers will lose even more on the auto bailout than previously thought, as the Treasury has just revised its estimate upward to $25 billion. This may still underestimate the losses to come—yet President Obama plans to tout the auto bailout as a key accomplishment of his Administration.

Politico recently obtained a draft of planning documents for the Democratic National Convention, finding a repeated focus on the auto bailout. The draft described the convention’s objectives:


Tell the story of the President’s accomplishments—the auto rescue, manufacturing, ending the war, health care, energy—as central to his fight for the middle class and America’s long-term economic strength.

As the losses continue to grow, will the President acknowledge that the only people truly “rescued” were unions? The President could have kept the automakers running without losing money—if he had restricted his Administration’s involvement to only providing bankruptcy financing. Instead, the Obama Administration involved itself heavily in the bankruptcy process, picking winners and losers instead of following normal bankruptcy law.

Heritage labor expert James Sherk and co-author Todd Zywicki found that all of the taxpayer losses occurred because the Administration manipulated bankruptcy law to shelter the United Auto Workers’ (UAW) compensation. None of the losses were necessary to preserve jobs, and taxpayers spent billions to prop up the compensation of some of the most highly paid workers in America. They write:

We estimate that the Administration redistributed $26.5 billion more to the UAW than it would have received had it been treated as it usually would in bankruptcy proceedings.…Thus, the entire loss to the taxpayers from the auto bailout comes from the funds diverted to the UAW.

The union workers, who were making more than $70 an hour in wages and benefits, received preferential treatment when their companies had to restructure. GM and Chrysler owed billions to a trust fund they had created to provide UAW members with gold-plated retiree health benefits—and taxpayers ended up paying right into that fund. That doesn’t happen in a normal bankruptcy.

Even Stephen Rattner, President Obama’s “car czar,” has admitted that “We should have asked the UAW to do a bit more. We did not ask any UAW member to take a cut in their pay.” As a result, even after the reorganization, GM still has higher labor costs ($56 an hour) than any of its foreign-based competitors.

More than $26 billion went out the door and into the UAW’s pockets. That’s bigger than the budget of the entire State Department. It’s bigger than all U.S. foreign aid spending. It’s 50 percent more than NASA’s budget—and the UAW isn’t going to be exploring Mars any time soon.

This massive payoff did not “save Detroit.” Though the Motor City has a well-earned reputation for having the greatest auto workers in the nation, these workers largely build cars for only three companies. There are no Volkswagen manufacturing plants in the Detroit area—or Mercedes-Benz. Or Kia. Or Hyundai. Or BMW. Since 1990, the majority of these successful foreign automakers’ new manufacturing plants have been built in right-to-work states like Alabama, Georgia, South Carolina, and Tennessee.

Workers in Detroit didn’t gain any new options. And perhaps even more dangerously, the auto bailout established a precedent of government interference in private business. It’s not a pretty picture—three years after Washington stepped in, U.S. taxpayers still owned 32 percent of GM. Next to Fannie Mae and the Postal Service, it is one of the largest government-owned enterprises in America.

And the Administration has used the auto companies to further its political agenda. As Heritage’s James Gattuso noted, “political influence has been clear in everything from the selection of dealers to be closed to the marketing of dubious, but administration-favored, ‘green’ vehicles.”

American taxpayers are unnecessarily on the hook for the gold-plated retirement benefits of a few. Twisting bankruptcy law to benefit a politically influential special interest group isn’t something to brag about.