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Study: Every GM Vehicle Sold Costs Taxpayers $12,200

Citizen Group's Report Puts Cost of Auto Bailout in Perspective

(Alexandria, VA) - The American taxpayer has put up $12,200 for every General Motors vehicle sold through the beginning of 2011, and $7,600 for every Chrysler vehicle sold as well, according to a new report issued by the 362,000-member National Taxpayers Union (NTU).

The report, The Auto Bailout - A Taxpayer Quagmire, authored by NTU Adjunct Scholar Thomas D. Hopkins, Professor of Economics at the Rochester Institute of Technology, does the math on what the government bailout of the auto industry - including General Motors, Chrysler, and GMAC - actually means to American taxpayers, including how much each taxpayer has contributed to the auto industry since December 2008 and how much each vehicle is costing us.

Auto_BailoutEvery time someone in your neighborhood drives home in a shiny new Chevy Silverado, remember that it cost American taxpayers more than $12,000," said Pete Sepp, NTU Vice President for Policy and Communications. "Between this and GM's plan to payback their bailout debt with other taxpayer funds, I wonder if all those Americans without work right now could think of any better ways to spend that money. This is a play out of the Bernie Madoff ponzi scheme playbook, and would be the equivalent of paying your Master Card bill with your Visa."

The study found that the average American taxpaying family has invested roughly $800 in the auto bailouts so far. Moreover, the study found, the government support poured into General Motors, Chrysler, and GMAC - the financing subsidiary that supports sales at both - now stands at a towering $78.9 billion. Given that figure, and an estimate of how many vehicles GM and Chrysler will sell through the end of 2010, the study finds that each vehicle one of the bailed-out companies sells costs taxpayers $10,700.

Finally, breaking down the costs by company, the study reports that every Chrysler vehicle sold costs taxpayers $7,600, and every GM vehicle sold costs taxpayers $12,200.

The research is based upon a November study released by the Government Accountability Office (GAO), entitled Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM, " a follow-up report on the "Troubled Asset Relief Program," as well as statements and reports released from the U.S. Treasury. Additional Findings Include:

    bailout1GMAC receives government guarantees not available to most private firms. Coincidentally, these are the same private firms that are forced to compete with GMAC taxpayer-assisted bank, Ally Bank. These guarantees save GMAC about $500 million annually in interest costs.

    During the first ten months of 2009, GM and Chrysler sales fell further than other major auto producers, down 33.4 percent and 38.9 percent, respectively.

    While the prospect of repayment of GM and Chrysler loans might be expected, after bankruptcy the vast majority of the bailout funds are no longer legal obligations of the newly-structured GM and Chrysler.

    If Americans are to believe public officials' claims that the government will eventually reprivatize the auto industry, the necessity of a thoughtful exit plan is essential. However, at this time no such plan exists, making it likely that the Treasury will not recover its investment.

"[T]he bailout has created moral hazard problems, inadvertently handicapping the progress of stronger, non-subsidized producers," Professor Hopkins concluded. "The problems extend beyond just the auto industry, as favored status for one financial company and its bank necessarily complicates prospects for non-subsidized rivals. The time has come to stop such bailouts, and in an orderly way, to seek at least some recovery for taxpayers."

Note: To view the complete issue brief, The Auto Bailout - A Taxpayer Quagmire, click here.

 

About the Author

Thomas D. Hopkins is Professor of Economics at Rochester Institute of Technology. He served as Dean of the College of Business 1998-2005 and as President, U.S. Business School in Prague, Czech Republic, an RIT MBA program where he taught 1992-98. He was the Arthur J. Gosnell Professor of Economics in RIT's College of Liberal Arts, 1988-98. Hopkins held senior management positions in two White House agencies during the Ford, Carter and Reagan Administrations; in 1979 President Carter appointed him a charter member of the federal government's Senior Executive Service. In the early 1980s, he served as Deputy Administrator, Office of Information & Regulatory Affairs, in the Office of Management & Budget. His research on business burdens of government regulation has been sponsored by the Organization for Economic Cooperation & Development (OECD) in Paris and the U.S. Small Business Administration (SBA) in Washington. He has testified on regulatory policy issues before committees of the U.S. Senate and House, and Canada's House of Commons. He co-authored a 2001 SBA report, "The Impact of Regulatory Costs on Small Firms," as well as National Research Council reports on marine transportation, the Exxon Valdez oil spill, and trucking/rail/barge transportation. He previously was on the faculty of American University, University of Maryland, and Bowdoin College.

Background

The Auto Bailout - A Taxpayer Quagmire is based on data obtained from the Government Accountability Office and Treasury reports on the Troubled Asset Relief Program. The study was sponsored by the National Taxpayers Union (NTU), a nonpartisan, nonprofit citizen organization founded in 1969 to work for lower taxes, smaller government, accountability from public officials, and economic freedom at all levels. For further information, visit www.ntu.org.

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