In late December 2014, the U.S. Treasury Department announced the official end of the automobile industry bailout, with loans given to two of the “Big Three” automakers having been repaid to the government’s satisfaction.
However, final accounting tallies published in 2014 reveal tthe corporations received almost $10 billion more than they repaid.
Created in January 2009 as part of the Troubled Asset Relief Program (TARP), the Auto Industry Financing Program (AIFP) loaned $79.69 billion to U.S. car manufacturing companies General Motors and Chrysler Motors and their respective in-house financing companies.
Funds allocated from the bailout program, part of the national government’s response to the subprime lending crisis, were also used to purchase majority shares of the companies, effectively nationalizing the private companies.
After the nationalization, the government later sold Chrysler Motors to foreign manufacturer Fiat. General Motors separated from the General Motors Acceptance Corporation (GMAC) financing company—now called Ally Financial—to allow GMAC to receive bailout funds as a financial corporation.
Repaid in 2010
Eighteen days before leaving office, the administration of President George W. Bush loaned Chrysler Motors $4 billion in taxpayer funds, through AIFP. On April 30, 2009, President Barack Obama gave an additional $8.5 billion in taxpayer-backed loans and investments to support Chrysler’s restructuring.
General Motors repaid its loans to the Treasury Department in April 2010, resulting in the removal of government control of the company. Chrysler Motors officially repaid its public loans in May 2011, assisted by the 2009 bankruptcy reorganization.
In 2011, the federal government sold its remaining shares of Chrysler, based in Auburn Hills, Michigan, to Italian automobile manufacturer Fiat, for $560 million. Before the sale, Chrysler had received $12.5 billion from the government, an average of about $91.52 from every taxpayer in the United States.
After the Fiat sale, however, the government had recovered only $10.6 billion, writing off the remaining $1.9 billion in outstanding loans as unrecoverable. Adding proceeds from the sale, nearly $1.3 billion in taxpayer money loaned to Chrysler was left unrecovered.
Another AIFP beneficiary, Ally Financial, made its final repayment on December 19, 2014, resulting in Ally’s return to private ownership.
Providing a total of $17.2 billion in public loans, the Treasury Department once owned nearly three-fourths of the bank holdings company. It sold 54.9 million shares of Ally Financial stock to private investors and returned control of business operations to the company.
Taxpayers Took a Loss
With the conclusion of the bailout, the Treasury Department’s accounting of auto bailout loans shows taxpayers recovered only $70.42 billion of the $79.69 billion loaned through AIFP, a loss of $9.6 billion, or about $65.75 per taxpayer.
“The sale of the government’s stake in Ally Financial—GM’s financing arm—marks the end of a piece of the Troubled Asset Relief Program, which was originally billed as a bank bailout program,” said Mercatus Center at George Mason University Senior Research Fellow Hester Peirce. “Taxpayer money was put at great risk, and the return on investment that Treasury now trumpets is not adequate to compensate taxpayers for the risk they took.
“Government should not be in the business of selecting winners and losers in the marketplace by directing cheap financing to favored sectors of the economy,” Pierce added. “Taxpayer dollars were invested in a sector of the economy that private money was avoiding for good reason.”
Jesse Hathaway ([email protected]) is managing editor of Budget & Tax News.