Auto loans, part 5: The press forgot to ask about the cost to the taxpayer

As I explained yesterday in part 4 of this series, the President delivered different substantive messages to General Motors and Chrysler. I would like now to focus on one element of that message, because there’s an enormous hole in yesterday’s announcement, and it appears that the press missed it. It appears that the Administration did not say how much additional taxpayer funding it is committing over the next 60 days.

We do know from the President’s remarks and from the White House fact sheet that part of the message delivered to Chrysler was:

  • We will subsidize you through April 30th so you have time to try to merge with Fiat.
  • We’ll consider subsidizing the merger with Fiat by up to $6 billion of taxpayer funds, as long as we get paid back first.

We also know that part of the message delivered to General Motors was:

  • We will “provide [you] with working capital for 60 days to develop a restructuring plan and a credible strategy to implement such a plan.”

The press could have reported yesterday’s story as, “President Obama today committed to put another $X billion of taxpayer funds at risk to save the auto industry, as he extended the loans provided by President Bush in December. He gave Chrysler a hard deadline, and promised taxpayers that they would spend no more than $Y billion to help Chrysler avoid bankruptcy. He made no similar commitment to taxpayers on General Motors, promising only that they would pay for at least enough to ‘provide [General Motors] with working capital for 60 days. These new commitments of taxpayer funds will come from the shrinking remainder of the $700 B of TARP funds appropriated by the Congress last September, leaving less to address the President’s goals in stabilizing the financial system.” I have seen no reporting like this, and I cannot see any evidence of the White House press corps asking what X and Y are.

Two reporters appear to have come close. In yesterday’s White House press briefing, one asked White House Press Secretary Robert Gibbs the following:

Q: … One of the very big debt holders to these two companies right now is the United States government and the United States taxpayer. Is part of why it looks like the White House is being tougher on these companies the fact that that taxpayer money isn’t going to come back, because once you go into bankruptcy or writing down debt, the taxpayer money is also in jeopardy — unlike the banks, which claim they’re going to pay it back eventually?

Q: And are the taxpayers one of those stakeholders at this point that’s going to have to make an additional sacrifice?

MR. GIBBS: Well, I — the President believes that the decision will put these companies on the best path forward and ultimately putting them on that stable and strong path to where they’re regaining market share and they’re selling automobiles is the best way for the taxpayer to recoup the money that has been loaned to Chrysler and GM.

Yes, sir.

Q: For the taxpayer that you’re trying to protect, what can you tell that person will be different under the new management of GM that was not true yesterday?

MR. GIBBS: Well –

Q: What will Rick Wagoner’s departure mean in the next 60 days that was not achievable with him at the top of the company?

I compliment these two reporters for at least asking about the taxpayer. They just need to get a little more specific.

The President’s immediate actions were to extend the March 31st deadline to April 30th, as he is permitted to do by the terms of the loans we issued in December, and also to commit new but unspecified amounts of taxpayer funding to keeping GM and Chrysler from having to file for bankruptcy over the next 30 (Chrysler) and at least 60 (GM) days.

We do not know how much more these new commitments will cost the taxpayer (and squeeze the TARP). We know that $29.9 B has already been loaned or committed to these two manufacturers, their suppliers, and now auto parts suppliers:

($ B)
Auto manufacturers
…. General Motors $13.4
…. Chrysler $4
Auto finance companies
…. GMAC(including $1B from US Treasury –> GM –> GMAC) $6
…. Chrysler Financial $1.5
Auto parts suppliers $5
Total $29.9

We also know that the Administration is willing to sweeten a Chrysler-Fiat deal by “up to $6 billion,” with a list of conditions. It appears that Sheryl Stolberg and Bill Vlasic misreported this in today’s New York Times as “will consider giving $6 billion in additional taxpayer aid.” There is a big difference between “up to $6 billion, if you meet certain conditions,” and “$6 billion.” The Administration has left themselves room to bargain with Chrysler-Fiat any number between $0 and $6 billion.

The White House staff deserve credit for managing the press to frame the story in a way that benefits the President.

  • Sunday afternoon the press learned that General Motors CEO Rick Wagoner would be stepping down at the request of the White House. This is irresistible to the press.
  • Sunday evening, reporters were briefed (I will guess by phone) by “senior officials.”
  • Monday morning, the President gave his remarks.

Like a bird that cannot resist looking at a shiny object, the press focused their initial coverage on Mr. Wagoner’s departure. (I intend no disrepect to Mr. Wagoner by this comparison.)

The President’s remarks then gave them plenty of new material for their stories. Faced with impending deadlines and a tidal wave of new information, most of them combined the information they were given with some outside analysis, producing the coverage you see in today’s papers.

If you read Mr. Gibbs’ press briefing yesterday, you will see that almost all of the questions are about Mr. Wagoner’s departure, or about comparing the government’s treatment of the auto companies compared to its treatment of Wall Street firms. Today’s coverage discusses in detail what might happen to these companies 30 or 60 days from now. In contrast, I have seen no coverage about the ambiguity about how much new taxpayer funding the President has decided to spend now. If you have seen some coverage of this point that I missed, please let me know. I would like to compliment the reporter.

$30 B is a lot of money. This amount is going up, but we don’t know by how much. I hope someone else asks.

(Hint for reporters: If Administration officials tell you, “It’s uncertain,” ask what estimate the President was provided. There’s no way they went in to brief the President without at least having an estimate.)

6 responses

  1. Mr. Hennessey,

    As someone who only took macro and mircroeconomics in college, one of the topics that has remained the most opaque to me has been monetary policy. Honestly, I do not know what it means when the government suddenly spends over a trillion dollars in 6 months. What does it mean when a government monetizes over a trillion dollars in debt via printing more money? What does it mean that the Fed interest rate is near zero? How do these factors affect America's economic viability going forward and how to they interact and compound one another?

  2. The assertion that the federal government will back up GM and Chrysler warranties seems bogus to me unless the feds are committed to keep all of those companies' critical parts suppliers in business as well. If the fuel pump breaks on your new Chevy and a new one isn't available, will Joe Biden machine one for you?

  3. Pingback: How Obama’s Auto Industry Announcement Should Have Been Reported | The Blog of Record

  4. The warranty assertion seems bogus……yes, I believe it's no more than a ruse by which GM will submit a "bill" for warranty services provided. It's just another way to provide taxpayer money without calling it a bailout.

  5. Pingback: Why is the President of the United States Mucking About in the Personnel Department of a Public Corporation? « American Elephants

  6. I don't know if you've ever worked on an American car or any other car, but the part in question is used by many different vehicles from several companies and is generally made by outside suppliers. There will continue to be a large demand for such parts even if production were to cease tomorrow. For example, I can still buy a new fuel pump for a 1970 Lincoln; the part is made by an outside supplier and is almost identical to one supplied for a similar Chevrolet application. _Finding_ the right part with the today's clueless counter help and equally clueless software can be difficult but the hardware itself is being produced.

    I cannot see what Joe Biden, George Bush or George Foreman have to do with installing a fuel pump; untangle your panties and re-read your own post.

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