Was the GM Bailout Necessary?

Written By Brian Hicks

Posted December 11, 2013

The General Motors (NYSE: GM) bailout was a highly controversial one. Many critics coined the term “Government Motors” after the government stepped in to help leading automakers avoid complete shutdown.

GMcollapseThe government has finally removed itself from the company, and GM is on its own now. And this is leaving many people – critics and supporters alike – questioning if the bailout was even needed.

The Near Collapse

Back when the economy took a downturn, GM couldn’t hold its head above financial waters. People were losing their jobs and weren’t finding new ones easily, so they didn’t have money to buy new vehicles. The company also faced some ridicule about its latest models, which weren’t living up to the prestigious past models.

As much as the automaker didn’t want to do it, it had to file for bankruptcy.

Since GM is one of the oldest automakers and basically an American icon, George W. Bush and then Barack Obama decided to step in and help the company stay afloat to avoid liquidation.

Exploring the Bailout What-Ifs

Looking back, the bailout was actually a success in some ways. GM is still around, and it’s growing again. Actually, it’s on track to record the biggest sales growth since 2007.

But there are still some problems many people can’t look past with the GM bailout.

Taxpayers lost a lot of money – about $10 billion from the Treasury funds that were used to support the automaker.

But let’s imagine what would have happened if GM didn’t receive a government bailout. As it turns out, the bailout may have been the lesser of two evils.

If the GM closed its doors in 2009, 2.63 million jobs would have been lost, according to the Center for Automotive Research. At a time when people were already losing jobs, this would have sent the economy even farther down.

Could you imagine all of those people looking for work and collecting unemployment? It’s likely we would still be trying to come back from that because it’s not easy to come up with a couple million jobs.

Aside from the unemployment rate hitting double digits, if a bailout didn’t happen, the Center for Automatic Research estimates there would have been $105 billion lost in transfer payments and social insurance tax collection. That $10 billion isn’t looking so bad, is it?

But wait, there’s more.

If GM shut down, 600,000 retirees wouldn’t have received their pensions. Older Americans would have been at a huge financial loss, and many of them would have had to work well into their Golden Years – except there wouldn’t be enough jobs available. That means there would have been even more pressure on the government.

So maybe a bailout was necessary to save the economy from further problems – though Detroit wasn’t especially saved. Sure, jobs were still intact, and there was still money to be made there, but it didn’t prevent the city’s own bankruptcy. Still, keeping GM going may have prevented the city from going under even sooner.

So now that the government has decided GM is strong enough to stand on its own, you’re probably wondering if there is something you can get out of the growing automaker – since it was your money that went toward keeping it around.

The good news is yes, there is definitely an investment opportunity for you.

GM Gets Its Act Together

As already mentioned, the automaker in on the path to record sales, and the consumer demand for GM vehicles is rising. Consumer Reports just named the Chevrolet Impala the best sedan and the Chevrolet Silverado the best truck. The Cadillac CTS has been named Motor Trend Car of the Year, and the Corvette is Automobile Magazine’s Automobile of the Year.

In addition to these acclaims, the company is holding out hope that the CTS or Corvette will become North American Car of the Year and the Silverado will become Truck of the Year. All are finalists.

Head of auto testing for Consumer Reports Jake Fisher told CNN Money:

“If you look at anything that’s been conceived post-bankruptcy, it’s been very, very good, just right down the line.”

It’s evident the company is on its way to making great strides in its sales, and with the government stepping out, GM can finally pay dividends.

If you’re going to pick up a stake in the company, don’t wait too long. There’s no way to know when the stock will spike. But make sure to do your own due diligence first, and take into account decisions by the Federal Reserve or anything else that may move the stock market.


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