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Auto Bailouts “Unambiguous Success” Despite $14 Bil Cost, Argues Rattner

Losses could narrow if GM stock regains momentum.

by on Dec.16, 2011

Former auto czar Steve Rattner.

The federal bailouts of General Motors and Chrysler were a collectively “unambiguous success,” according to the man who helped pulled the deals together – despite the likely $14 billion bill to U.S. taxpayers.

Moving fast was critical, and despite claims that it would have been easier to just let the makers go into bankruptcy on their own, former U.S. auto czar Steven Rattner told The Detroit Economic Club there was no option but to have the federal government step in considering the economy had fallen into its worst downturn since the Great Depression.

The Final Word!

White House officials, up to and including President Barack Obama, have suggested that the bailouts ultimately saved anywhere from 500,000 to as many as 1 million U.S. jobs and prevented the economy from going into a full-fledged depression.

“It’s unambiguous that it was a success,” said Rattner, who detailed the effort to save the two makers in his book, “Overhaul.”

Rattner has countered critics by arguing that there were no alternative sources of capital available to fund the post-bankruptcy turnaround of GM, Chrysler and automotive lender Ally Financial – the former General Motors Acceptance Corp.

In hindsight, Rattner told his audience of Detroit business executives there is “amazingly little” he would now do differently if he had a chance to restructure the automotive bailouts, though he also admitted “we could have done a little bit better job…if we had a little bit more time.”

Things started going south for the domestic industry in the waning days of 2008, as the Bush Administration was preparing to hand over power, but the situation only worsened in 2009, as the Obama White House was still moving in.  Chrysler filed for Chapter 11 protection barely three months later, followed shortly afterwards by GM.

Rattner acknowledged they did hurt some stakeholders more than others.  Bondholders suffered especially significant losses, and hundreds of GM and Chrysler dealers were summarily dropped in an effort to restructure the distribution networkers of the two automakers.

By comparison, the United Auto Workers Union came out of the process making relatively modest concessions – though labor costs were ultimately lowered from $70 an hour to around $50 between 2007 and late 2009.

Still, “I think if we had more time, we might have asked all the stakeholders to sacrifice a little bit more … We didn’t ask any active worker to cut his or her pay, we didn’t ask them to sacrifice any of their pension and we maybe could have asked them to do a little bit more,” Rattner said.

Though it appears that taxpayers will be paying $14 billion for the automotive bailouts – about 20% of what GM, Chrysler and Ally were loaned – the final figure will depend on what happens when GM sells off the remaining 25% stake held by the U.S. Treasury.

The maker’s stock has fallen to barely $20 a share, down from the IPO figure of $33, but that is in line with the rest of the automotive stocks, analysts note.  Prior to the recent plunge on Wall Street, many analysts were forecasting the maker’s shares might ultimately reach, or even top, $50.  Much more than that and taxpayers could actually break even.

Rattner, who ran into legal trouble for some questionable financial dealings earlier this year, now manages the personal assets of New York Mayor Michael Bloomberg.

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