Was the Auto Industry Bailout Legal? It’s Debatable, Oversight Panel Says

The Treasury Department sent $81 billion in taxpayer-subsidized aid to
General Motors and Chrysler — which is unlikely to be recouped in full
— using legal authority that "is the subject of considerable debate,"
according to a report released today [PDF] by the congressionally appointed bailout oversight panel.

3c7e114d_8a91_4fe2_904e_48142d17f617.jpgRon Bloom, the president’s top manufaturing adviser. (Photo: AP via HuffPo)

The
bailout legislation approved in October allowed Treasury to take over
"troubled assets from any financial institution," but provided for a
very broad definition of the term.

That "ambiguity about
congressional intent," the oversight panel stated, helped ensure that
"Treasury has faced no effective challenge to its decision to use
[bailout] funds for this purpose [of rescuing automakers]."

Media coverage of the report has focused
on the panel’s finding that GM and Chrysler would have to post an
unprecedented financial turnaround in order to fully repay obligations
to the government.

But the oversight panel isn’t alone in concluding that
taxpayers have a slim chance of recovering all their investments in the
auto industry — Ron Bloom, President Obama’s chief manufacturing adviser, agrees.

From a footnote in the oversight panel’s report:

During
a meeting with Panel staff on August 11, 2009, Mr. Bloom explained that
it was possible but unlikely that taxpayers would recover all of the
money they had invested in Chrysler and General Motors. Mr. Bloom has
acknowledged that “likely scenarios involve a reasonable probability of
repayment of substantially all of the government funding for new GM and
new Chrysler, and much lower recoveries for the initial loans.”

Those
initial loans, the panel explained, are the $23.4 billion lent by
Treasury to the pre-bankruptcy incarnations of the two struggling car
companies.

So now that U.S. taxpayers have an inescapable
stake in GM and Chrysler, what conditions should they expect the
government to impose on the automakers?

The oversight panel, led by
Harvard Law School professor Elizabeth Warren, urges Treasury to refine
its multitude of potentially conflicting objectives for the auto
bailout into a specific set of goals — and provide that long-overdue
legal justification for the $81 billion rescue.

Rep. Jeb
Hensarling (R-TX), the only panel member to dissent from okaying
today’s report, released his own hard-hitting recommendations. One of
them touches on issues of great concern to environmentally motivated
bailout critics:

The management of Chrysler and GM
should provide the American taxpayers with a quarterly business plan
that addresses, without limitation, the following challenging issues:

  • Without
    a growing SUV market, how do Chrysler and GM plan to compete against
    the Asian and European manufacturers who have all but perfected the
    design and manufacture of well-built, fuel efficient cars? …
  • How
    do Chrysler and GM plan to develop the design and technical expertise
    necessary to build vehicles with the fit-and-finish and price-point of,
    for example, a Honda Accord or Civic or a Toyota Camry or Corolla, not
    to mention a Toyota Prius?

Chrysler’s statement to the panel offers an illuminating answer to
Hensarling’s first question. According to the company’s proprietary
surveys, "Americans feel that fuel prices will be, on average, $2.89
per gallon in one year and $4.50 in five years."

A poll
released by IBM this month found that more than 50 percent of commuters
would take a harder look at replacing driving with transit, biking, or
walking if gas hit $4.50 per gallon. So Chrysler may well see its day
of reckoning … in five years.

  • Wad

    How do Chrysler and GM plan to develop the design and technical expertise necessary to build vehicles with the fit-and-finish and price-point of, for example, a Honda Accord or Civic or a Toyota Camry or Corolla, not to mention a Toyota Prius?

    I don’t know if this is only a rhetorical question, but a better question would be directed to GM.

    GM, for 25 years, you and Toyota were partners in the Bay Area auto plant NUMMI, where the Toyota Corolla is made for the American market. You not only had the opportunity to learn Toyota’s manufacturing and quality management techniques, but Toyota even allowed its cars to be rebadged as GM vehicles (Chevy Nova, Geo/Chevy Prizm, Pontiac Vibe). Why, in a quarter century, had you not learned anything from the NUMMI experience or leverage it to reform your company?

    It’s a good question to ask, since now that both GM and Toyota dissolved NUMMI, it means another 10,000 jobs will be lost in the state.

    On the other hand, there has been a report that Solyndra, a maker of solar cells, is considering taking over the NUMMI plant.

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