Media gets it completely wrong on how much money the Federal bailout of GM lost

The Washington Post has a typical discussion about the costs of the bailout.

THE OBAMA administration announced Thursday that it would sell its remaining shares in General Motors by the end of the year, heralding an end to the largest direct government bailout of a U.S. industry in modern history. The U.S. government stands to lose $10 billion on its investment, based on GM’s current stock price. Combined with the Treasury Department’s already realized loss of $1 billion on its smaller investment in Chrysler, that brings the total cost to taxpayers of rescuing two of the Detroit Three to $11 billion. 

Was it worth it? Anyone who claims a definitive answer to that question is not being honest. The government could have spent less on the bailout if it had driven a harder bargain with the autoworkers’ union, which made only modest concessions. But taxpayers would likely have ended up on the hook for a substantial amount anyway. That cost would have to be weighed against the costs of not intervening, which might have resulted in liquidation and a cascade effect throughout the auto industry supply chain. Not even financially healthy Japanese, German and Korean factories could have escaped that unscathed, to say nothing of the surrounding cities and towns. On the other hand, resources not devoted to propping up GM and Chrysler could have found alternative productive uses, perhaps yielding more jobs and other benefits to society in the long run. . . .

Here is the letter that I sent to the Washington Post:

Letter 145 words

Dear Letters Editor: 

The Washington Post uncritically accepts the Obama administration claim that the GM bailout lost only $10 billion ("Closing the door on the GM investment," 11/23).  But that estimate depends on believing the bailout was limited to $50 billion in TARP funds. 

The list of funds funneled to GM includes: waiving $45.4 billion in taxes on future profits, exempting all product liability on cars sold before the bailout, and $360 million in stimulus funds.  Other programs are harder to quantify but include some of the $15.2 billion that went to Cash for Clunkers and the $7,500 tax credit for those who buy the Chevy Volt. 

Take an example.  Suppose the government had waived another $50 billion in GM's tax liabilities before selling GM's stock.  The stock price would surely rise appreciably.  But would doing that then mean the government actually profited from the original bailout?  Hardly. 

Sincerely, 

John R. Lott, Jr., Ph.D. 

Chevrolet Volt sales continue slow, GM cuts price by $5,000, but was already losing money on each sold before price cut

$7,500 tax credit, pricing it so low that they are losing money on each car, and they still couldn't sell more than 30,000 in 2012.  From Bloomberg:

GM loses money on each Volt it sells while not disclosing a specific figure. The model, which is eligible for a $7,500 U.S. tax credit, was introduced in 2010 and has struggled to meet some sales targets. Volt is GM’s flagship car for its efforts to have about 500,000 vehicles on the road by 2017 with some form of electrification. The car can travel 38 miles (61 kilometers) on battery power before a gasoline engine engages. . . . 

Leaf sales accelerated this year after Nissan Motor Co. (7201) in January added an S version of the Leaf that’s cheaper than the SV and SL models. Unlike the Volt, the Leaf has no extended range engine. Leaf sales more than tripled to 11,703 through July from 3,543 during the same period a year earlier, outselling Volt in the U.S. by 60 vehicles. . . . 

Even with the accolades, the car struggled to garner the kinds of sales sought by Chief Executive Officer Dan Akerson, who had forecast global Volt sales of 60,000 in 2012, before settling for about half that amount. 

In late April, Akerson said GM was working to cut the price of producing the Volt by as much as $10,000 each without removing features for the next-generation version which he indicated could come out in 2015 or 2016. . . .

Whatever one thinks of electric cars the Volt has been a waste of taxpayer dollars with government subsidies and a product of government control following the bankruptcy.

Fiat moving Chrysler and Jeep production to China or Italy

Well, this comes at an awkward time for Obama, though I suppose that it would have been much worse before the debates or the Democratic National Convention.  It sure would have stepped on some Democratic talking points.  From Bloomberg News:

Fiat SpA (F) Chief Executive Officer Sergio Marchionne set a target two and a half years ago to sell 6 million cars annually by 2014, a goal that analysts and industry observers at the time deemed impossible to achieve. They were right. . . . 

Fiat’s problems are bigger than many rivals’ because its troubled home country accounts for half its sales in the region. Its plants in Italy, where car sales are on pace to plunge this year to the lowest level in more than three decades, are running at 50 percent of capacity, far below the 80 percent threshold typically considered profitable. 

To counter the severe slump in European sales, Marchionne is considering building Chrysler models in Italy, including Jeeps, for export to North America. The Italian government is evaluating tax rebates on export goods to help Fiat. Marchionne may announce details of his plan as soon as Oct. 30, the people said. . . .

GM US employment at 74,500 at the end of 2011, about 16,500 less than right before the bailout

Before filing for bankruptcy in July 2009, GM had 91,000 employees in the United States. After the company was reorganized the number of employees was reduced to 68,500. Well, now the number of employees at the end of 2011 (not accounting for the reduction in employment at dealerships) is back to 74,500. More of a discussion is available here.

Rasmussen has this interesting discussion of the impact that the bailouts had on the perception that people had of the GM, Ford, and Chrysler.

More Americans than ever have a favorable opinion of Ford, the one Big Three automaker that didn’t take federal bailout money.

A new Rasmussen Reports national telephone survey finds that 78% of American Adults have at least a somewhat favorable impression of Ford. . . . Thirteen percent (13%) have an unfavorable opinion of Ford. The new findings include 44% with a Very Favorable impression of the Detroit-based manufacturer and just five percent (5%) with a Very Unfavorable one. (To see survey question wording, click here.)

General Motors is a far distant second, with 44% of Americans sharing a favorable opinion of the world’s largest automaker, . . . . This includes just 13% who have a Very Favorable impression of GM. Forty-five percent (45%) have an unfavorable opinion of automaker, with 17% who view it Very Unfavorably.

Nearly as many (43%) have a favorable opinion of Chrysler, while another 43% regard the automaker unfavorably. This includes 12% with a Very Favorable opinion of Chrysler and 13% with a Very Unfavorable one.

In March 2007, before the bailouts, GM was the most popular of the car manufacturers with favorables of 69%, compared to Ford's 57% and Chrysler's 51%. However, perceptions of GM and Chrysler dropped once they began to aggressively seek taxpayer assistance to stay afloat. . . .

Obama claims "GM is back"

Obama claimed today that "GM is back."  Well, here is how GM's stock price has changed since the IPO in late 2010.

The Hill newspaper has more on pushing the GM bailout yet again:

President Obama touted his administration's bailout of the U.S. auto industry as American car companies are beginning to sell their 2013 model year vehicles. 

"Every year around this time, American car companies start rolling out their newest, shiniest models, hoping to entice you into buying one," Obama said in his weekly address. "And this year is no exception. They’ve got some pretty good-looking cars coming out. 

"But something is different this time around – and it starts with the auto companies themselves," the president continued. "Just a few years ago, the auto industry wasn’t just struggling – it was flatlining. GM and Chrysler were on the verge of collapse. Suppliers and distributors were at risk of going under. More than a million jobs across the country were on the line – and not just auto jobs, but the jobs of teachers, small business owners, and everyone in communities that depend on this great American industry." 

Obama has often used the auto bailout to counter Republican claims that his policies are harming the U.S. economy. . . . .

Another $150 million spent to subsidize the Volt that has gone down the drain

Yet another bad investment from the Obama administration.  From Fox News:

President Obama touted it in 2010 as evidence "manufacturing jobs are coming back to the United States,” but two years later, a Michigan hybrid battery plant built with $150 million in taxpayer funds is putting workers on furlough before a single battery has been produced.
Workers at the Compact Power manufacturing facilities in Holland, Mich., run by LG Chem, have been placed on rotating furloughs, working only three weeks per month based on lack of demand for lithium-ion cells. 

The facility, which was opened in July 2010 with a groundbreaking attended by Obama, has yet to produce a single battery for the Chevrolet Volt, the troubled electric car from General Motors. The plant's batteries also were intended to be used in Ford's electric Focus. 

Production of the taxpayer-subsidized Volt has been plagued by work stoppages, and the effect has trickled down to companies and plants that build parts for it -- including the batteries. . . . 

The 650,000-square-foot, $300 million facility was slated to produce 15,000 batteries per year, while creating hundreds of new jobs. But to date, only 200 workers are employed at the plant by by the South Korean company. Batteries for the Chevy Volts that have been produced have been made by an LG plant in South Korea. . . .

CBO notes that it really doesn't pay to buy a Volt even with the current $7,500 tax credit subsidy

I have had a lot series of posts on GM and the subsidies given to the Volt.  The CBO has a report available here.

Some of the discussions in the report seem incorrect:

Given current prices for vehicles and fuel, in mostcases the existing tax credits do not fully offset thehigher lifetime costs of an electric vehicle comparedwith those of an equivalent conventional vehicle ortraditional hybrid. For example, CBO estimates that a plug-in hybrid with a 16 kWh battery that is comparable in size and performance to an average- fuel-economy conventional vehicle (that is, one with a fuel economy of about 25 miles per gallon) would cost about $19,000 more to buy than the conventional vehicle. That plug-in hybrid would reduce the total discounted present value of fuel costs over an assumed 150,000-mile life by about $7,000 (based on average prices, in 2010 dollars, of $3.60 per gallon for gasoline and 12 cents per kWh for electricity and a discount rate of 10 percent), for a total difference in lifetime costs of about $12,000.10 The $7,500 tax credit that applies to such a vehicle would need to be about 60 percent larger to make up that difference. 

In the case of the Volt, the difference in price is about $21,000. But the other errors are also important.  

$3.60/25 = $0.144 per mile for gas
10.9 kWh = $0.04 per mile

At 12,000 miles per year, that comes to $1,248.  $19,000 - $7,500 = $11,500.  Even without any interest costs, there number implies that it would take 9.2 years to pay off the difference.  If the price difference were $21,000, with the $7,500 tax credit, it would take 10.82 years. 

The report also notes:

However, the tax credits have other, indirect effects: Increased sales of electric vehicles allow automakers to sell more low-fuel-economy vehicles and still comply with the federal standards that govern the average fuel economy of the vehicles they sell (known as CAFE standards). Consequently, the credits will result in little or no reduction in the total gasoline use and greenhouse gas emissions of the nation’s vehicle fleet over the next several years. As a result, the cost per gallon or per metric ton of any such reductions will be much greater than the cost calculated on the basis of the direct effects alone. . . .

GM giving massive subsidies to try getting people to buy Volts

Remember the previous articles that GM was losing $49,000 per Volt that it sold?  Well, apparently that was an underestimate by about $10,000.  Remember that this car also gets a $7,500 tax credit from the government.  Of course, despite all these huge loses to GM and taxpayers, the Volt is essentially the same car as the gasoline powered Chevy Cruz and the 2013 Cruz starts (25/36 mpg) at about $17,130 ($18,225 with automatic), still than the Volt.  With a $10,000 discount and the $7,500 tax credit, the Volt still costs about $22,500.  

So, let's assume that the price of gas is $4.00 a gallon, that the difference in car prices between the Cruz and Volt is $4,000, that the Cruz gets 30 mpg (assuming half local and half highway driving), and that the Volt costs $.06 per mile (the middle point of the EPA estimates provided here).  The cost of the Cruz per gallon is thus about $.13 ($4/30) so the difference in cost per mile is $.073.  If the car is drive 12,000 miles each year, the savings would be $876 ($.073*12,000).  Even assuming no interest costs, it would take 4.6 years to pay off the $4,000 higher price for the Volt (the difference is actually more than that, especially if you add in the higher sales tax).  Without the $10,000 additional subsidy, it would take 16 years to pay off the higher price for the Volt.  Are you really planning on owning the car for 16 years?  This of course ignores the cost of replacing the batteries and the higher insurance costs for the Volt.

From Fox News:

General Motors rolled out the Chevrolet Volt two years ago with lofty sales goals and the promise of a new technology that someday would help end America's dependence on oil. 

So it seemed like a good thing in August when sales of the $40,000 car set a monthly record of 2,800. But a closer look shows that things aren't what they seem for the cutting-edge car. 

Sales rose mostly because of discounts of almost $10,000, or 25 percent of the Volt's sticker price, according to figures from TrueCar.com, an auto pricing website. Other pricing services gave similar numbers, and dealers confirmed that steeply discounted Volts are selling better than a few months ago. 

GM's discounts on the Volt are more than four times the industry's per-vehicle average, according to TrueCar estimates. Edmunds.com and J.D. Power and Associates say they're about three times the average. Discounts include low-interest financing, cash discounts to buyers, sales bonuses to dealers, and subsidized leases. 

Americans have been slow to embrace electric cars. But the Volt's August sales show they're willing to buy if prices are low enough. . . .

Sales of 2,800 in a month when some of those sales are to the government and to GE, which is trying to curry favor with the government, does not signal people are "embracing" the Volt.

These screen shots were taken today (9/24).  BTW, the Eco version gets 28/42 mpg and still only costs about $19,680.

GM is losing about $49,000 per Volt that it sells?

If you are going to subsidize every unit of a model car you are selling by $49,000 (plus of course the Federal government is giving another $7,000 tax credit), you would think that you should be able to sell a lot of those cars, right?  Apparently, GM still can't get people to buy the Volt.

Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.

And while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt, which will soon face new competitors from Ford, Honda and others.

GM's basic problem is that "the Volt is over-engineered and over-priced," said Dennis Virag, president of the Michigan-based Automotive Consulting Group. . . .

GM's quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs - which will be difficult to bring down until sales increase. . . .

Rahm Emanuel claims that Auto Industry and GM are "thriving"?

Rahm Emanuel at the Democratic National Convention: "And because President Obama made the right choice, over 1 million Americans are still working today.  The American auto industry is not just surviving.  It is thriving." 

I wrote this in May:

The “million jobs” contention is quite a stretch. Before filing for bankruptcy in July 2009, GM had 91,000 employees in the United States. You can reach a 400,000 total by assuming that all of GM’s jobs, as well as all the jobs of its parts suppliers and car dealers, would have been lost. Last year, employment in the entire automotive industry in the U.S. (counting Ford, Toyota, and other companies and their suppliers, in addition to GM and Chrysler) was only 717,000. . . .

You can see how the company is doing from the changes in its stock price over the last couple of years.  It hardly looks like a thriving company. Of course, Ford Motors was hurt by its competitors getting massive government subsidies.  In any case, Ford has also had some rough times, though over the whole two year period its stock might not have fallen by as much as GM's.

GM again suspends production of Chevy Volt

Last year GM sold 7,671 Volts.  This year they seem on track to double sales.  But less than 20,000 units is pretty small, especially compared to the huge subsidies provided by the government.  Auto News has this:

General Motors plans to idle the plant where it assembles the Chevrolet Volt plug-in hybrid for four weeks starting next month, two people familiar with the plans said. 

GM will close its Detroit-Hamtramck plant from Sept. 17 until Oct. 15, one of the sources said. Union representatives last week told the plant's roughly 1,500 workers about the scheduled downtime, the source said. . . . 

It's the second time this year that GM has throttled back on Volt production. The Detroit-Hamtramck plant was idled from March 19 until April 16 amid swollen Volt inventories.
Volt demand has picked up this year, after sales last year fell short of GM's goals. GM sold 10,666 Volts through July, more than triple the 2,870 sold during the same period a year earlier. . . .  

Volt inventories have been whittled down, too, to 6,500 units, or 84 days' worth, as of Aug. 1. On March 1, just before the last production shutdown, GM had 154 days' worth. . . . 

UPDATE: But, as the commenter below notes, much of the Volt's sales are due to purchases from GE for its employees.

GE began purchasing Volts for its employees last month [March] in what it called "the largest order in history" of cars for its employees. However, the Volt numbers reflect a slow start to the GE Volt order. GE plans to buy 12,000 Volts by 2015. In effect, GE could buy 500 Volts each month in 2013 and 2014 and meet that target, without buying any Volt fleet vehicles this year. GE did say all fleet vehicle replacements in 2012 will be made with Volts, but it seems as if that could be a minor part of the Volt story if it is successful this year. 

The GE buying of Volts will continue to be a swing factor in month-to-month sales figures for the Volt, but the March data shows consumer demand for the vehicle is increasing at a critical time for GM, critical because of the excess supply. 

There have been more than 18,000 Volts produced and roughly half had been sold through February, a situation that led to the production halt and a more recent statement from GM that the production shutdown could be extended by a week. 

Analysts have also pointed to sales of the Nissan Leaf, down 29% for the past two consecutive months, as a sign that all is not well among U.S. consumers when it comes to the electric car market. 

However, the "inorganic source of demand," from GE and the trend in Leaf sales didn't reflect what was simply a good month for the Volt in March, once GM broke out the retail vs. fleet numbers on a conference call with analysts and the media. . . . . 

In addition, the Federal government has been making large purchases of GM cars, presumably also including the Volt.  This also brings into question how well the GM bailout has been going.  Here is a discussion from January this year.

Speaking of suspicious activity, an interesting statistic was revealed on GM's sales conference call. Government purchases of GM vehicles rose 32% from last year. This represents yet another conflict as the Obama Administration has a vested interest in GM's success as it spends more taxpayer dollars to help support the company as 2012 elections near. . . . 

GM sales spokesman, Jim Cain, government sales reportedly make up 5% of total sales and most of those sales are to state and local governments.  But 2% of 248,750 is still 4,975 units.  If even 10% of those sales are for Volts, the government may account for virtually all the remaining sales.

UPDATE: Military making big purchases of Volt.

The Pentagon is buying Chevrolet Volts to help “green up” the military—while propping up sales of the bailed-out automaker’s most politicized car. 

The Department of Defense began purchasing the struggling luxury electric car, which retails at $40,000, this summer as part of its goal to purchase 1,500 such green vehicles. The Marine Corps Air Station in Miramar, Calif. purchased its first two Volts in July, and 18 more vehicles will come shortly to Joint Base Andrews in Maryland, where Air Force One is based, according to military magazine Stars and Stripes. . . . 

GM is now offering the vehicle for as low as $169 per month, a financing deal that is generally reserved for $15,000 cars—a price so low that GM is reportedly losing nearly $50,000 per vehicle. The struggling automaker will again suspend production later this month after only 2,500 Volts drove off the lots last month. . . .

UPDATE: Advertising for GM's Volt in Europe banned as misleading.

. . . Now the commercial has been banned for misleading motorists who want to do their bit for the environment.The advertising watchdog’s ruling is a blow to Vauxhall’s Ampera, which beat the Range Rover Evoque to win the European Car of the Year award for 2012.Vauxhall insisted its claims about the Ampera were genuine and that once in ‘range extender mode’, it can indeed keep going for 360 miles. . . .

Will history be kind to TARP?: No, if the accounting is done accurately.

WSJ: Bank CEO: History Will be Kind to TARP

“TARP successfully stabilized not only the banking industry but a number of other industries as well. The general view I would have is that history will be fairly kind to TARP,” Sterling Financial Corp. Chief Executive Greg Seibly said in an interview.
The Treasury Department this week announced that it expects to earn about $113.3 million in a public offering of the shares it holds in the Spokane, Wash.-based bank. Treasury also has received about $6.7 million in dividends from Sterling, and will get yet a little more back when it sells warrants it continues to own.
Still, it’s a steep discount and a clear net loss on the original investment of $303 million.
Overall, Treasury estimates that TARP will cost taxpayers $47.75 billion, largely due to expenses related to the auto bailout and housing programs.
TARP’s bank programs turned a profit, though Treasury is now selling off holdings in smaller banks at a discount. Sterling is the latest example. . . .

Is this really serious?   The GM loss is dramatically underestimated by the TARP accounting methods.  I suspect that bank losses are also underestimated for a similar reason.  Total subsidies should be measured, not just TARP subsidies.  In GM's case, tens of billions of dollars given to the company raises the value of the stock and also gave it the money to pay off the loans that it had received.  Those higher stock prices didn't come free.  In the case of banks, I suspect that all the subsidies given to the banks through the Fed were nontrivial and should also be counted.

Obama: " I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry"

The auto bailouts were a financial disaster that made the US much poorer.  From Politico:

President Obama, while villifying Mitt Romney for opposing the auto industry bailout, bragged about the success of his decision to provide government assistance and said he now wants to see every manufacturing industry come roaring back. 

“I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry. 

“I don’t want those jobs taking root in places like China, I want those jobs taking root in places like Pueblo,” Obama told a crowd gathered for a campaign rally at the Palace of Agriculture at the Colorado State Fairgrounds here. . . .

GM's profits plummet

The current value of GM is less than $30 billion.  That hardly looks good compared to the $100 billion that government has invested in the company.  From the UK Guardian:

General Motors' profits fell 41% in the second quarter as troubles in Europe undercut strong sales in North America.America's largest automaker made $1.5bn in the second quarter of 2012, compared with $2.5bn for the same period last year. Revenue fell to $37.6bn from $39.4bn in the second quarter of 2011. The results exceeded analysts' estimates, but further underlined Europe's drag on the US economy. . .

Meanwhile the Federal government is buying a lot of GM cars.

Budgets may be tight, but the federal government has increased its fleet of cars to 449,000 vehicles — or nearly one for every seven federal employees — according to the Government Accountability Office.The Department of Veterans Affairs saw the biggest jump, adding 49 percent more vehicles between 2005 and 2011 — or even more than the Homeland Security Department, which was new in 2005 and has steadily grown since, including doubling the size of the U.S. Border Patrol. . . . 

Is General Motors manipulating its sales numbers?

Are General Motors' sales a lot worse than they seem? Is GM recording inventories that it is sending to dealers as "sales"? What sales there are seems to be sales to the government. Is GM really government motors? From "The Truth about Cars":

A lawsuit filed by a Florida investor against General Motors over the age-old practice of “channel stuffing”, or sending inventory to dealers and recording it as a “sale”, so that revenue numbers can be pumped up while the vehicles languish on dealer lots. The practice of channel stuffing is universal in the auto industry, but in this case, the consequences are much broader. . . . While General Motors is touting their 32 percent year-over-year increase in sales, a closer look at the numbers reveals a couple of things. According to Bloomberg, inventory for full-size trucks was at a 135 day supply, as GM ostensibly cranked out profitable pickups and sent them off to dealers across the land, allowing them to book sales of their most lucrative vehicles just in time for the half-way mark – and coincidentally (or not), government purchases of GM vehicles rose 79 percent in June. Retail sales were up a mere 8 percent, while fleet sales rose by 36 percent. . . .

GM protected from product liability claims over old cars

I think that there are too many product liability suits, but what would the reaction be if a Republican was responsible for this?  I have mentioned this in my op-eds on this topic, but it is nice to see this getting more coverage.  From the WSJ:

A General Motors Co. (GM) lawyer demanded the widow of a car-crash victim drop a plan to seek punitive damages from the auto maker, even though the company's government-brokered overhaul doesn't bar plaintiffs from going after such legal penalties.The GM lawyer in a March 3 email told a lawyer representing the widow of a man killed in a GM-made U-Haul truck that GM couldn't be sued for punitive damages in the case. Other lawyers say that assertion stretches beyond what they believe is GM's legal exposure in product-liability cases. Even so, after receiving the email, the widow's lawyer abandoned plans to make a claim for punitive damages against GM.
Punitive damages are intended to punish corporations and others for reckless or intentional wrongdoing, such as selling products despite knowledge of their dangerous defects. Their goal is to deter future wrongdoing by the defendant or others poised to engage in misconduct.
The dispute highlights questions now arising over how much legal protection GM and Chrysler Group LLC have in certain product liability cases following 2009 government rescues that exceeded $70 billion. A bankruptcy judge allowed Chrysler to immunize itself from new punitive-damage claims arising from alleged manufacturing defects in vehicles sold before its restructuring. Chrysler's immunity was the subject of a Page One article in The Wall Street Journal on April 5. . . .

Newest piece at National Review Online: Obama and GM Cook the Books

My newest piece at National Review starts this way:

Would you hire President Obama as your financial adviser? Three years ago his administration invested more than $100 billion in taxpayer money to bail out General Motors. On Tuesday, the entire company, not just what the government owns, was worth less than $34 billion. By anyone’s definition, that investment is a glaring failure. Yet over the last few days the Obama campaign, in a $25 million marketing blitz, has flooded the airwaves with ads in battleground states, claiming the bailout should be counted a rousing success.
Unfortunately, assertions that “all loans have been repaid to the federal government,” that the bailout “saved more than one million American jobs,” that “U.S. automakers are hiring hundreds of thousands of new workers,” that GM is again the “number-one automaker” — all are based on creative accounting. . . .

Prediction: France's economy will worsen relative to the rest of the EU

With Krugman and other Democrats claiming that austerity policies have been the problem in Europe, we will soon have a big test.  Just like Germany's and Poland's policies have been a big test that restraining government spending has worked well and Greece, Spain, and Portugal have provided excellent tests for the opposite, France will now provide another test.  Does raising government spending, increasing deficits, taxing the wealthy sound familiar?


Here are some articles on topics that we will hear more about:


From the Financial Times:

. . . . François Hollande, the Socialist candidate who leads the presidential race after the first round of voting last week, wants to impose a tax rate of 75 per cent on income above €1m and at the launch of his bid in January said: “My true adversary in this battle has no name, no face, no party ... It is the world of finance.”Inquiries from French clients had risen by roughly 40 per cent since the speech, says David Blanc, a partner at Vestra Wealth, a London-based wealth manager.
“I have definitely seen strong interest in what could be done to protect assets both for people resident in France but also for French nationals who are UK resident,” said Mr Blanc, a former UBS executive.
The prospect of a Gallic diaspora of high earners was backed up by Knight Frank, the property agent, which said numbers of French web users searching online for its prime London properties online in the past three months had risen 19 per cent compared with the same period last year. The equivalent figure for Europe as a whole fell 9 per cent.
“The election seems to have pushed a growing number of wealthy French to consider their options for where they are likely to base themselves in the future,” says Liam Bailey, head of research at Knight Frank. . . . 

From the UK Independent:

France will be waking up today to its first Socialist President for 17 years – and bracing for radical change. There are all kinds of reasons why one might fear a François Hollande presidency, especially if you are a prosperous French person.The 57-year-old Socialist has openly admitted that he "does not like the rich" and declared that "my real enemy is the world of finance". This means taxing the wealthy by up to 75 per cent, curtailing the activities of Paris as a centre for financial dealing, and ploughing millions into creating more civil service jobs.Add an explicit threat to renegotiate the euro pact to replace austerity with "growth-creating" spending, and you have one of the most vehemently left-wing programmes in recent history.German Chancellor Angela Merkel – the woman at the centre of the Franco-German economic powerhouse which has dominated Europe – was at one stage even threatening to campaign for her conservative ally, Nicolas Sarkozy, against Mr Hollande.Caution is justified, though one thing Mr Hollande will not repeat is the disastrous tax-and-spend policies introduced by France's last Socialist President, François Mitterrand, in 1981. He was soon forced into a humiliating U-turn, and into sharing power with the right as the Communists quit his cabinet in protest. . . .

Not as radical as Mitterrand? Well, who in the US is advocating these types of policies?

Will Greece continue to repudiate any notion of fiscal responsibility and continue the Keynesian path it has been on?  Can the anti-bailout parties in the EU form a minority government with some help from the Communists on issues with which they agree?  From Reuters:

Greece's Left Coalition called on Sunday for an anti-bailout coalition, saying the country's general election showed that austerity policies had been soundly defeated and a peaceful revolution ushered in.
The Communist KKE - which believes Greece should abandon the euro - immediately rejected Tsipras's call for a leftist alliance.
"Mrs Merkel needs to understand that austerity policies have suffered a huge defeat," said Left Coalition leader Alexis Tsipras, referring to German Chancellor Angela Merkel. . . .

New Op-ed in the Philadelphia Inquirer: "U.S. money given to GM has been a bad investment"

The print version of my new piece starts this way:

If you invested more than $100 in a company, would you be happy if your shares were worth only $35? By anyone’s definition that investment would have been a terrible failure.

Yet, that is how the federal government’s investment in General Motors looks. The federal government has put in well over $100 billion into shoring up General Motors, but the entire company, not just what the government owns, was worth only $35 billion on Friday.

GM sales have bounced around, rising in March and then falling in April, but investors’ best guesses for what future sales will be are already in GM’s stock price. And surprisingly, a recent Rasmussen poll shows that support for the bailout has been rising and now 44 percent of likely voters say that the bailout was good for America.

The money the government spent adds up quickly: $50 billion in TARP bailout funds, a special exemption waiving payment of $45.4 billion in taxes on future profits, an exemption for all product liability on cars sold before the bailout, and $360 million in stimulus funds. Other money of which it is harder to quantify GM’s share includes the $15.2 billion Cash for Clunkers program and the $7,500 tax credit for those who buy the Chevy Volt. And all those costs don’t even include the billions taken from GM’s bondholders by the Obama administration. . . .

Some sources for the piece:

GM Could be Free of Taxes for Years

Biden White Claims about GM

Obama's comments about GM in April

Obama pushes GM success

GM Sales data dispute over how to count it

GM Bailout good for America

Cost of Cash for Clunkers program to taxpayers

Problems with Government being both owner and regulatory

Number of GM Employees in the US

Under a deal struck by the UAW during GM's bankruptcy, laid-off non-union workers will not be hired back

From the WSJ:

Even General Motors Co.'s Lordstown, Ohio, complex, long known for its money-losing small cars and its bad labor climate, is running 24 hours a day, with more than 4,000 workers churning out hot-selling Chevy Cruze compacts. But here in Moraine, the GM assembly plant closed for good. Despite being one of GM's most productive and cooperative factories, Moraine was closed following the company's 2007 labor pact with the United Auto Workers union. Under a deal struck by the UAW during GM's bankruptcy two years later, Moraine's 2,500 laid-off workers were barred from transferring to other plants, locking them out of the industry's rebound. The trouble with Moraine: Its workers weren't in the UAW. "We did everything we could to keep that plant open and keep our jobs," said Mitchell Wood, a 44-year-old father of two who used to attach tailgates onto sport-utility vehicles at Moraine. "But in the end, we didn't have a chance, not being in the UAW." The plight of Moraine workers highlights the extraordinary role played by the UAW during the near-collapses and bankruptcy reorganizations of GM and Chrysler Group LLC. That role remains a political flash point today. Democrats have cast President Barack Obama and the UAW as saviors of America's auto industry. Republicans call the help a taxpayer-funded giveaway to the president's union allies. . . .