A new study estimating the crippling effects the failure to save two of Detroits automakers would have had on the U.S. economy was released Monday, the same day the U.S. Treasury Department sold its final shares of General Motors stock.
The U.S. Government ended up losing $10.5 billion on the GM bailout, but it says the alternative would have been far worse. The Treasury Department recovered $39 billion of the $49.5 billion it spent to save the dying automaker at the height of the financial crisis five years ago.
Without the bailout, the country would have lost more than 1 million jobs, and the economy could have slipped from recession into a depression, Treasury Secretary Jacob Lew said on a conference call with reporters.
"The economic stakes were high, and President Obama understood that inaction was not an option," Lew said. "His decision to commit additional support to GM while requiring them to fundamentally restructure their business was tough but it was right."
A report released Monday by the Center for Automotive Research, or CAR, an Ann Arbor, Mich., think tank, estimates without the federal government's intervention to prevent the failure of GM and Chrysler, nearly 1.9 million jobs would have been lost in 2009 and 2010. Federal and state governments also would have lost $39.4 billion in tax revenue and payments made for unemployment benefits and food stamps, the study said.
Dr. Sean McAlinden, the Center's chief economist who led the analysis said,"CAR is confident that in the years ahead this peacetime intervention in the private sector by the U.S. government will be viewed as one of the most successful interventions in U.S. economic history."
He added that two consecutive presidential administrations decided the consequences to the U.S. economy, employees, retirees and business owners made the federal intervention worth it.
The government received 912 million GM shares, or a 60.8 percent stake, in exchange for the bailout in 2008 and 2009. It began selling shares once GM went public again in November of 2010, and the pace picked up this year as the stock rose more than 40 percent. Last month, the government said it expected to sell the remaining 2 percent stake by the end of the year.
GM shares rose 73 cents, or 1.8 percent in after-hours trading following the announcement. They rose 1.8 percent in regular trading, at one point reaching $41.17, the highest level since GM's 2010 initial public offering.
Earlier Monday, Mark Reuss, GM's North American president, told reporters in Warren, Mich., that a government exit would boost sales, especially among pickup truck buyers. GM has said repeatedly that some potential customers have stayed away from its brands because they object to the government intervening in a private company's finances.
During the conference call, treasury officials shrugged off a question about whether GM should have been required to pay more because it has a large cash stockpile, saying that the bulk of the bailout money was converted to GM stock. The company now is sitting on $26.8 billion in cash and is considering restoration of a dividend.
In the study CAR researchers analyzed two scenarios, one assuming full automotive collapse and the second considering the loss of only GM employment. The full industry shutdown scenario results estimate a loss of 2.63 million U.S. jobs in 2009 and 1.52 million jobs in 2010. The scenario examining a GM-only shutdown would have reduced U.S. jobs by 1.2 million jobs in 2009 and 675,000 jobs in 2010.
The study noted that other benefits of the intervention often forgotten is direct impact on GM and Chrysler retirees, a probable permanent loss of automotive research and product development jobs and the implications of bankruptcies of this magnitude in 2009 on the consumer confidence.
GM went through bankruptcy protection in 2009 and was cleansed of most of its huge debt, while stockholders lost their investments. Since leaving bankruptcy, GM has been profitable for 15 straight quarters, racking up almost $20 billion in net income on strong new products and rising sales in North America and China. It also has invested $8.8 billion in U.S. facilities and has added about 3,000 workers, bringing U.S. employment to 80,000.