Would a disinterested observer be equally bullish? Mr. Geithner is surely right that the liquidation of both GM and Chrysler in early 2009 would have shocked a U.S. economy already in free-fall. Avoiding this shock had large public benefits.
But it’s difficult to measure those benefits against the costs of the rescue, even if the Treasury Department is right that the direct price tag for taxpayers will be $14 billion out of an $80 billion investment. Among other uncertainties, we do not know what the government will get for its remaining one-third share of GM. Lately the stock has traded at $30, down $3 since last year’s initial public offering.
The auto industry as a whole did not quite face “extinction, total collapse,” as Vice President Biden said recently. If GM and Chrysler had failed, their profitable parts would, eventually, have been bought up and put to work by others. Over time, U.S.-based plants run by Ford, Honda, BMW and the rest would have captured market share, presumably expanding production and hiring workers in the process. Government dollars spent propping up the two automakers might have created jobs elsewhere.
Nor is it clear that, having decided to aid the industry, the administration chose the best way of doing so. The administration forced an aggressive new management team on GM but did not press the United Auto Workers, its political ally, for even deeper labor cost reductions. Mr. Geithner referred to a “rich debate” internally over the decision to save Chrysler. What he did not mention is the opponents’ argument: that propping up Chrysler would saddle GM with additional competition, thus complicating survival for the larger, stronger company. That argument still applies. According to a new survey by Booz & Co., only 16 percent of executives in the auto industry believe the Chrysler rescue was a positive development.
A majority of these insiders rate the industry’s condition as “somewhat better” than it was in January 2009. Almost two-thirds, however, said that the restructuring imposed by the Obama administration “did not go far enough.”
Mr. Geithner, to his credit, argued that GM and Chrysler should be masters of their own destiny. “We cannot guarantee their success, and at some point they may stumble,” he wrote. But a message of “too big to fail” has been sent. Can he guarantee there will never be another bailout for GM — or a third for Chrysler? For all the good news from Detroit, the industry is not out of the woods, as poor May sales and GM’s sagging stock price suggest. A remarkable 29 percent of executives told Booz & Co. that a U.S. automaker could fail within the next 24 months.