When the big automakers went to Washington and Ottawa (and Toronto) to request funding from the taxpayers, politicians were more than happy to oblige. Why shouldn’t taxpayers bailout the private sector when jobs are at stake?
This was a bipartisan move, and all of the leading news media outlets applauded.
A decade later, and General Motors is now closing up shop in Oshawa, Ontario and four U.S. states.
Suffice it to say, the people are not happy.
The reasoning for GM’s closure is understandable – changing market dynamics, corporate restructuring, rising labor costs, tariffs, and others – but this is also evidence that you should never send tax dollars to these goliaths.
Let these companies sink or swim on their own.
Treasury Secretary Steven Mnuchin appears to agree, retweeting a Trump fan account that said, “If GM doesn’t want to keep their jobs in the United States, they should pay back the $11.2 billion bailout that was funded by the American taxpayer.”
Although he deleted the retweet after it was discovered it wasn’t President Donald Trump who said this, the sentiments are right.
Bailouts only create moral hazards.
GM is always lying. I remember their CEO saying that they paid back all the money that they owed the government. Now I find out they still owe 11.2 Billion. I remember the government also lost billions on the GM stock purchase. I was going to purchase a new car from GM in 2019, now I am thinking I will go some place else to spend my $30,000. Let them sell to China, I think that is their plan anyway.
In 2008, General Motors should have followed the rules of Bankruptcy Law. They should have declared Chapter 11 and filed in the court of proper jurisdiction. The case should have been adjudicated, and the company allowed to return to operating post-bankruptcy.
They might have been forced by economic reality to close a few plants and possibly shutter a division or three. Since the company probably didn’t have the cash on hand to pay back the people who loaned them money (the bondholders), much of the common stock would have been distributed to them as a part of the settlement. Suppliers would have been paid for what was provided to keep the company operating. Labor contracts would have been renegotiated.
Instead, what did happen was the federal government allowed the company to avoid centuries of law precedent and avoid paying back the lenders. They still closed several divisions. Some suppliers were paid in full, while others took diminished payments. The unions got control of the company transferred to them, and were allowed to keep their contracts in force.
If the law had been followed, then we wouldn’t be having this political fight about the way the company is now doing a dirty deed to their employees and multiple political jurisdictions.