For all the fire and brimstone denunciations by right-wing doomsayers and Republicans in wish of an economic disaster on President Obama’s watch, the bailout of the auto industry – like the TARP and most other stimulus initiatives – is proving its value in the preservation of a key national industry. General Motor’s stunning initial public offering this week had Wall Street panting and ended up surpassing all expectations.
It opened Thursday with stock values set at $33 – $4 to $7 higher than underwriters had expected last week. And after selling a whopping $22.6 billion in shares- making it the largest IPO in global history – its stock closed Thursday even higher, at $34.19, and rose a little higher on Friday.
In the process, GM virtually dumped its shame-laden “Government Motors” moniker, cutting the government’s stake in its business from 61 percent to 26 percent. With that, it halved the debt of the original $50 billion taxpayer bailout 17 months ago and raised the prospect that GM could finish repaying Washington the balance within two years.
With that achievement in prospect, Washington stands to turn a significant and relatively quick profit on the GM bailout. It’s already recovered more than $7.4 billion in interest and dividends as GM has restored profitability, and its profit should continue to grow as GM extends its string of profitable quarters after a six-year stint in red ink.
Just how successful the bailout has been, for Washington and taxpayers and the American economy as a whole, as well as for GM, is measured not only in GM’s remarkable turnaround, but also in the figures cited in a new report Wednesday by the Center for Automotive Research.
Its report credited the Obama administration’s rescue package for GM and Chrysler with saving more than 1.1 million jobs in 2009 and 314,000 more jobs this year. That is the highest estimate yet. It bears out the justification the Obama administration correctly argued in organizing the bailout in the trough of the Great Recession.
The administration maintained then that the aid package was not just about helping keep the two car companies alive. More broadly, it was about saving a much larger web of jobs and businesses – parts suppliers, dealers and their service shops across the country – that are connected to the car companies, and the economic ripples that flow from their businesses through many communities.
Residents of the greater Chattanooga area should appreciate that reasoning first-hand by now. A single manufacturing job is generally said by economists to support four to five other new jobs in retail and service industries as manufacturing employees’ spending passes through the economy. With Volkswagen adding more than 2,000 plant jobs here, and its parts suppliers adding nearly as many, the 4,000 to 5,000 jobs related to the VW plant may generate the addition of another 20,000 jobs over time from the increased spending in retail, service and housing industries.
Beyond that, the rescue of GM and Chrysler helped preserve the future interests of the nation in the auto industry and in the research and development that the industry brings to bear in energy efficiency and the transportation industry overall. Indeed, it would be hard to imagine America remaining competitive in the global economy without a vigorous and leading-edge auto industry.
GM, of course, had to make painful cuts to return to profitability. It slashed roughly 1,000 dealers and thousands of jobs at the plants it closed, and it narrowed its longtime brands from eight to four. And though it’s now turning a profit again and competing head-on with its Asian and European rivals in the quality of its new products, its future will be assured only by continued hard work.
Still, its revival is a welcome and vital element in the recovery of the nation’s economy. It’s also a testament to the Obama administration’s courage and wisdom to extend help to keep the economy and our future industrial base intact when Republicans in lockstep and partisan idiocy turned their back on a vital industry.