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CAR: Bailouts paid for themselves by 8:1

by David Zatz on

According to the Center for Automotive Research (CAR) in Ann Arbor, Michigan, every dollar lost by taxpayers saved eight dollars of taxpayer money.  The reasoning is familiar, and was cited at the time (and, since then, by numerous commentators, including investor Warren Buffett): the uncontrolled bankruptcies of General Motors and Chrysler would have resulted in waves of supplier liquidations and unemployment, slashing tax revenues, halting production at Ford and import plants, and resulting in massive claims for unemployment benefits and, later, food stamps. Cities relying on tax revenues from the automakers and their suppliers would also have had to slash their payrolls and many would have followed into bankruptcy.

According to the CAR, the bankruptcies would have eliminated $284 billion in wages in 2009 and 2010, while costing the federal government alone $105 billion. The writers, Sean McAlinden and Debra Menk, wrote that it will probably seen as “one of the most successful interventions in U.S. economic history.”

While the extent of the savings can be debated, and CAR is likely not completely unbiased in the matter, most researchers have so far agreed that the bailouts have prevented much greater losses and major economic repercussions. Both GM and Chrysler have recovered faster than anticipated.

The government will likely end up having lost $14 billion on the bailouts; in Chrysler’s case, all the losses ($2 billion) would be from the bridge loans authorized by George W. Bush. In GM’s case ($12 billion), the losses would also come from lower than expected stock prices at the new GM. [Read more at Automotive News]

David Zatz founded Allpar in 1998 (based on a site he had begun in 1993-94), after years of writing reviews for retail trades. He has been quoted by the New York Times, the Daily Telegraph, the Detroit News, and USA Today. Before making Allpar a full-time career, he was a consultant in organizational psychology. You can reach him by using our contact form (much preferred) or by calling (313) 766-2304

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