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Is This Trip Really Necessary? Automakers' Bailout Could Hit $100B by Year-End

Posted May 21, 2009 02:57pm EDT by Aaron Task
Related: GM, F, ^GSPC, ^DJI, TM, HMC, GT
The U.S. government is preparing a bailout package of $7 billion for GMAC, whose total bailout could hit $14 billion while the tally for the auto industry could hit $100 billion by year-end, The Wall Street Journal reports.

The report comes, of course, against the backdrop of the government's efforts to restructure Chrysler and GM, the latter of which reached a tentative deal today with the UAW.

Now $100 billion (or more) is a lot of money, even in an era of multi-trillion-dollar federal budget deficits so several questions beg:

  • Should the U.S. government be bailing out the automakers (period)?
  • Does America need three U.S.-owned automakers?
  • What kind of return can taxpayers expect on that $100 billion (or more) investment in the industry?

University of Texas professor James Galbraith addresses these and related questions in the accompanying video.

In short, Galbraith believes it might have made sense to combine at least the R&D departments of U.S. automakers, a plan suggested months ago by BLS Investments Chairman Bernard Schwartz. But since that route wasn't taken, Galbraith believes a "public good" is served in sustaining the U.S. auto industry, both in terms of maintaining jobs today as well as maintaining the capacity to increase domestic production when the economic cycle turns rather than becoming totally dependent on foreign automakers.

As for getting a return on the $100 billion? Don't hold your breath.

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