Zywicki on Reality of Auto Industry Bailouts

An article in Investor's Business Daily cites a report by Professor Todd Zywicki and James Sherk, published by the Heritage Foundation, in maintaining that the price tag of the auto bailout includes significant concessions to the United Auto Workers (UAW) union.

The ultimate cost to taxpayers was much higher than necessary, according to the report.

In the case of GM, at least, reorganization through bankruptcy "would have produced a company more competitive than the one that emerged from the bailout process," Zywicki writes in National Affairs. Instead, the result was "a bankruptcy combined with a bailout, incorporating the worst elements of both."

"Had the administration required the UAW to accept standard bankruptcy concessions," the authors conclude, " the government could have executed the bailout at no net cost to taxpayers."

A $23 Billion Bailout, Investor's Business Daily, June 15, 2012.

"Obama's big point of pride these days is that he didn't 'let Detroit go bankrupt' and that due to his efforts, 'not only did we save the auto industry, but we're actually seeing better cars made' and Detroit carmakers are 'on top of the world once again.' 

"On the surface, it seems to be true. Obama did up the bailout ante that President Bush started in 2008. And Detroit carmakers are doing better these days. In May, GM announced a $1 billion profit in Q1 2012, and Chrysler announced bigger-than-expected profit for the first three months of the year.

"But the reality is even without the bailouts, GM and Chrysler likely would have survived. They just would have gone through normal bankruptcy proceedings — which many still-existing large firms have done before."