# What is the government’s involvement in the auto industry bailout? **URL:** \ **Category:** Great Debates\ **Created:** [April 22, 2010, 4:05pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999 "2010-04-22T16:05:45Z")\ **Posts on this page:** 18\ **Page:** 1
**Author:** ![Rhythmdvl](https://avatars.discourse-cdn.com/v4/letter/r/85f322/32.png) [@Rhythmdvl](https://boards.straightdope.com/u/Rhythmdvl)\ **Post date:** [April 22, 2010, 4:05pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/1 "2010-04-22T16:05:45Z")
One of the right wing’s talking points is that the government nationalized the auto industry. For example, in [defending](http://thehill.com/homenews/house/93697-bachmann-standing-by-gangster-gov) her description of the administration as “gangster government,” Michele Bachmann said: > [@](#): > > When government comes in and decides who the winners are, who the losers are and there’s no recourse, that’s what happened to 3,400 dealerships across the country. That’s one example of gangster government. First, is my assumption correct in that she’s referring to the massive dealership closings that took place several months ago (and may still be ongoing, I don’t know)? If so, what was the administration’s involvement in the decision? Did they mandate a certain amount of closures? Mandate which ones would close? What was its involvement in deciding who the winners and losers were? Given the inherent absurdity and proclivity for falsehood that comprise Bachmann’s schtick, I wouldn’t be surprised that the claim is made up of whole cloth. But other than that, what _is_ the government’s involvement in the auto manufacturers it bailed out? I’m not asking about all government regulation (e.g., CAFE standards), I’m referring to new powers and decision-making authority directly tied to the bailout. ---
**Author:** ![Captain\_Amazing](https://avatars.discourse-cdn.com/v4/letter/c/6de8d8/32.png) [@Captain\_Amazing](https://boards.straightdope.com/u/Captain_Amazing)\ **Post date:** [April 22, 2010, 4:24pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/2 "2010-04-22T16:24:15Z")
Part of the GM bailout/bankruptcy/government takeover required them to cancel franchise agreements with non profitable local dealerships. So, GM canceled the agreements with dealerships who didn’t meet certain sales and profitability standards. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 22, 2010, 4:39pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/3 "2010-04-22T16:39:48Z")
Required them or allowed them? My understanding was that they and everyone else knew that they had way too many dealers, but they were bound to keep them until they went into bankruptcy. The bailout let them declare bankruptcy but maintain credibility. I’ve never seen any evidence that government was involved in deciding which dealerships to close. So, Bachmann is lying again, as if that were big news. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [April 22, 2010, 4:46pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/4 "2010-04-22T16:46:16Z")
It helps if you can think like an anti-big government conspiratorist. But here it is in a nutshell. Federal government loans GM $57 billion, in effect becoming the majority stockholder. GM fires its CEO, Rick Wagoner, at the request of the Obama administration, replacing him with Fred Henderson. One may presume that Henderson, if not hand-picked by the feds, was at least approved by them. Henderson leads GM through Chapter 11. When the company comes out of reorganization, Henderson resigns and is replaced as CEO by Ed Whitacre. Whitacre had been appointed Chairman of the Board of GM during the Chapter 11 reorganization. So, if one were prone to thinking in dark terms, one might conclude that Henderson and Whitacre are lackeys of the Obama administration. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [April 22, 2010, 4:49pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/5 "2010-04-22T16:49:18Z")
> [@](#): > > If so, what was the administration’s involvement in the decision? If the companies in question took the bailout money then they did so under a set of government requirements, including whether or not to shut down what was considered unprofitable divisions and dealerships. You takes the governments money, you plays by the governments rules. > [@](#): > > Did they mandate a certain amount of closures? Yes, among other requirements and restrictions. That’s why not every automaker took the bailout money, and why even those that did thought about it a couple of times before finally doing so. > [@](#): > > What was its involvement in deciding who the winners and losers were? Well, that’s a good question. On the surface, profitability. But what other agendas were involved is, afaik, anyone’s guess at this point. > [@](#): > > But other than that, what is the government’s involvement in the auto manufacturers it bailed out? Well, the government basically set forth a bunch of requirements, including the development of new technology and the streamlining of their ‘brands’ (i.e. cutting out brands that the government thought were sub-optimal to whatever it was the government didn’t want), etc. -XT ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [April 22, 2010, 5:02pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/6 "2010-04-22T17:02:34Z")
> [@xtisme](#): > > Well, the government basically set forth a bunch of requirements, including the development of new technology and the streamlining of their ‘brands’ (i.e. cutting out brands that the government thought were sub-optimal to whatever it was the government didn’t want), etc. > > -XT **Xtisme** , are you saying that the gummint ORDERED poor little GM to drop Saturn, Hummer and Pontiac? ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [April 22, 2010, 5:03pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/7 "2010-04-22T17:03:59Z")
I have also seen conspiratorial suggestions that the Government would not be coming down as hard as it has on Toyota if it were not a major shareholder in Toyota’s largest American competitor. Hasn’t GM backed down on a bunch of the dealership closures? ---
**Author:** ![Rhythmdvl](https://avatars.discourse-cdn.com/v4/letter/r/85f322/32.png) [@Rhythmdvl](https://boards.straightdope.com/u/Rhythmdvl)\ **Post date:** [April 22, 2010, 5:08pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/8 "2010-04-22T17:08:00Z")
> [@xtisme](#): > > Well, the government basically set forth a bunch of requirements, including the development of new technology and the streamlining of their ‘brands’ (i.e. cutting out brands that the government thought were sub-optimal to whatever it was the government didn’t want), etc. > -XT Is there a division between conditions (i.e., we’ll bail you out if you increase this or that or adapt this or that technology) and continued control? Is the choice of CEOs assailable or were Wagoner et al qualified? What did the “cutting out brands that the government thought were sub-optimal” entail? Were there administration directives to kill the Radiostar brand in particular, or was it a set of business-criteria upon which the corporations made decisions? I guess I’ve generally assumed that it was another right wing marketing point (i.e., empty rhetoric loosely based on a shadow of facts) aimed at stirring up the base. But I want to check that assumption and figure out where the nationalization and direct control is taking place. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [April 22, 2010, 5:11pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/9 "2010-04-22T17:11:12Z")
GM apparently has discovered they need some of the dealerships that were slated to close. Whats the big deal with that. The government went in, cut wages and removed the leadership as they saw fit. That is what they should have done with the Banking Industry. They should not have been allowed to eat tax payer money with huge salaries and bonuses. But that is a different group of people, the wealthy and powerful . ---
**Author:** ![Captain\_Amazing](https://avatars.discourse-cdn.com/v4/letter/c/6de8d8/32.png) [@Captain\_Amazing](https://boards.straightdope.com/u/Captain_Amazing)\ **Post date:** [April 22, 2010, 5:13pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/10 "2010-04-22T17:13:38Z")
> [@Voyager](#): > > Required them or allowed them? My understanding was that they and everyone else knew that they had way too many dealers, but they were bound to keep them until they went into bankruptcy. The bailout let them declare bankruptcy but maintain credibility. I’m pretty sure they made the closing of unprofitable dealerships a condition of getting bridge funding, but I’ll have to research that to make sure. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [April 22, 2010, 5:19pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/11 "2010-04-22T17:19:39Z")
When a large business collapses, generally whoever was owed the most money is able to take control over the business. That group will then take whatever measures they feel is necessary to either turn the company around or sell it off in bits for the greatest return they can get out of it. If they have chosen to correct the business rather than to sell it off, they might take it under their wing as a child corporation, or they might simply replace the management, force some hard decisions to be made, and then disappear back into the mist collecting loan repayments like they had been before. The government has been doing nothing more than what a bank or the stockholders would have been doing. “Nationalizing” GM would mean that GM was simply a child corporation of the US government like the Post Office. But so far as I am aware or that I can tell, the government has not done that. They made GM clean itself up, and then they went away and are letting it operate as a fully independent company again. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [April 22, 2010, 5:25pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/12 "2010-04-22T17:25:31Z")
[QUOTE=kunilou] Xtisme, are you saying that the gummint ORDERED poor little GM to drop Saturn, Hummer and Pontiac? [/QUOTE] I believe that getting rid of some of their brands was part of the contingency of receiving the funds, yes. I don’t know which specific brands were involved, and I’m not up on the details anymore as it’s been a while, but in essence, yes…if a given automaker wanted to receive the funds offered there were conditions attached, and some of those conditions involved automakers getting rid of some brands and shutting down some dealerships. [QUOTE=Rhythmdvl] Is there a division between conditions (i.e., we’ll bail you out if you increase this or that or adapt this or that technology) and continued control? Is the choice of CEOs assailable or were Wagoner et al qualified? [/QUOTE] I don’t know how much ‘continued control’ is being asserted, to be honest. I doubt that there is NO control, just like with the banks, but I also doubt that the government has sent in it’s own people to tell the automakers everything they have to do either. From what I remember, most of the conditions were initial conditions that had to be met, most likely with some metrics attached showing that the automakers were complying with the agreed upon requirements (such as developing whatever technologies the government wanted them to emphasize). > [@](#): > > I guess I’ve generally assumed that it was another right wing marketing point (i.e., empty rhetoric loosely based on a shadow of facts) aimed at stirring up the base. But I want to check that assumption and figure out where the nationalization and direct control is taking place. Well, it IS a right wing marketing point aimed at stirring up their base, but that doesn’t mean there aren’t any grains of truth in it. Like I said, I don’t think that the government is acting as puppet masters for GM and Chrysler, but by the same token the government certainly DID attach strings to the funding they provided as part of the bailout. -XT ---
**Author:** ![Rumor\_Watkins](https://avatars.discourse-cdn.com/v4/letter/r/d9b06d/32.png) [@Rumor\_Watkins](https://boards.straightdope.com/u/Rumor_Watkins)\ **Post date:** [April 22, 2010, 5:51pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/13 "2010-04-22T17:51:02Z")
Lookey here, the interests of an insolvent corporation in returning to profitability happen to sync-up almost perfectly with the interests of a creditor providing credit to an insolvent corporation. That’s all there is to say about it. ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [April 22, 2010, 6:28pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/14 "2010-04-22T18:28:44Z")
> [@kunilou](#): > > So, if one were prone to thinking in dark terms, one might conclude that Henderson and Whitacre are lackeys of the Obama administration. I didn’t look up Henderson, but I assume we’re talking about Ed Whitacre, former CEO of AT&T, who gave the legal limit to the McCain campaign? Sounds like a total Obama bootlicker! ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [April 22, 2010, 6:44pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/15 "2010-04-22T18:44:42Z")
Found [this](http://useconomy.about.com/od/criticalssues/a/auto_bailout.htm) article on the bailouts for anyone interested: > [@](#): > > Auto Bailout Specifics > The auto bailout proposal from the Big 3 auto companies totaled $34 billion in government loans. In return, the companies promised to fast-track development of energy-efficient vehicles, and consolidate operations. GM and Ford agreed to streamline the number of brands they produced. They also won agreements from the UAW union to delay contributions to a health trust fund for retirees and reduce payments to laid-off workers. The three CEO’s agreed to work for $1 a year and sell their corporate jets. > [@](#): > > GM’s Bailout > GM received $6 billion through GMAC, which became a bank holding company. GM asked for $18 billion in loans, of which $4 billion was needed to avoid bankruptcy before the end of 2008. In return, GM agreed to give the government warrants for common stock, preferred stock, and a promise to repay the loan in 2012, when it anticipates it will again break even. GM pledged to cut its debt by $30 billion by converting debt ownership for equity. It agreed that union health-care benefits would be paid to retirees in 2010. It promised to sell its Saab, Saturn and Hummer divisions, reducing the number of models for sale to 40. It would reduce employment from 96,000 to 45,000 by 2012. (Source: Bloomberg, Chrysler Financial to Get $1.5 Billion to Aid Car Sales, January 19, 2009) > [@](#): > > Chrysler’s Bailout > Chrysler’s $1.5 billion EESA loan was made to a new financing corporation, Chrysler Financial, set up for the purpose. The interest rate for the loans was 1 point above LIBOR. In addition, Chrysler Financial promised to pay the government $75 million in notes and reduce executive bonuses by 40%. As a result, car buyers will get 0% financing for five years on some models.(Source: Washington Post, U.S. Expands Aid to Auto Industry, January 19, 2009) > > Chrysler received $4 of the $7 billion bridge loan it originally requested. It also asked for $6 billion from the Energy Department to retool for more energy efficient vehicles. In return, Chrysler’s owner Cerberus vowed to convert its debt to equity. Chrysler wanted the Big 3 to partner with the Federal government in a joint venture to develop alternative energy vehicles. Chrysler pledged to debut an electric vehicle in 2010, ramping up to 500,000 by 2013. -XT ---
**Author:** ![YogSothoth](https://avatars.discourse-cdn.com/v4/letter/y/8edcca/32.png) [@YogSothoth](https://boards.straightdope.com/u/YogSothoth)\ **Post date:** [April 22, 2010, 7:11pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/16 "2010-04-22T19:11:10Z")
Here is something I would say to the Michelle Bachmann’s of the world: GM is going to turn a profit, they’re repaying back billions of dollars that the government lent them, and the government is selling their stake in the company. If that is government takeover, then government takeover is a good thing. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 22, 2010, 7:18pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/17 "2010-04-22T19:18:47Z")
> [@Captain\_Amazing](#): > > I’m pretty sure they made the closing of unprofitable dealerships a condition of getting bridge funding, but I’ll have to research that to make sure. It wouldn’t surprise me, since the excess of dealers was known to be a problem. However Bachmann was implying that the government specified which dealers to close, and that is what I doubt. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [April 22, 2010, 8:03pm UTC](https://boards.straightdope.com/t/what-is-the-government-s-involvement-in-the-auto-industry-bailout/536999/18 "2010-04-22T20:03:02Z")
> [@Rumor\_Watkins](#): > > Lookey here, the interests of an insolvent corporation in returning to profitability happen to sync-up almost perfectly with the interests of a creditor providing credit to an insolvent corporation. > > That’s all there is to say about it. Indeed. Outside of the government insisting on GM focus on green technologies, they’ve done nothing but what everyone and their brother have been telling GM to do for decades: 1. Shrink the number of brands. Before falling, GM was forced to treat each of the companies that it had bought as though they were independent companies. This meant that each of them might have an SUV, a truck, a coupe, a sedan, etc. Because of this, GM was releasing a bunch of cars that were competing against each other for the clients money, diminishing the total returns for any one car, while also adding development costs. 2. Shut down dealerships that aren’t turning a profit. 3. Lower wages and benefits to employees to be competitive with other car manufacturers. That’s not nationalizing, it’s being given the gumption to say “screw you” to the unions that have been running the show and forcing GM to never shrink anything.