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.
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:
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.”
initial loans, the panel explained, are the $23.4 billion lent by
Treasury to the pre-bankruptcy incarnations of the two struggling car
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.
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
The management of Chrysler and GM
should provide the American taxpayers with a quarterly business plan
that addresses, without limitation, the following challenging issues:
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? …
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."
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.