In June 2009, the federal and Ontario governments used massive amounts of taxpayer cash to rescue two corporations deemed too big to fail: General Motors and Chrysler.
The cost to Canadians was $13.7 billion US: $10.8 billion to GM and $2.9 billion to Chrysler.
The taxpayer bailout was part of the court-supervised restructuring process for the two companies, egged on by the Obama administration.
Two years later, federal Finance Minister Jim Flaherty trumpeted the bailout and claimed Chrysler repaid the loans in full. That was false.
After the bailout, Chrysler returned $1.7 billion in principal and paid an additional $250 million in interest. In addition, the governments received proceeds from selling their stakes in Chrysler to Fiat, worth $125 million. Another $15 million was paid to Canada because of a side deal with the U.S. Treasury.
Taxpayers in Canada are still short $810 million on the original $2.9-billion Chrysler loan. That will never be recouped, as part of the loan was made to the Chrysler entity that existed pre-restructuring. It was a gift to Chrysler and a loss to taxpayers.
As for General Motors, the math is complicated, given the federal government wrote off $6.6 billion in 2009-10 and still holds common and preferred shares in the company. The final cost of the 2009 bailout will depend on the GM share price when finally sold.
Here is what we do know: The original loan to GM in June 2009 was $10.8 billion. Since then, the governments garnered about $2.8 billion from GM repayments, interest and proceeds from the sale of some government-owned GM stock in 2010. Still in government hands are shares worth an estimated $5.2 billion, based on the price of GM stock at the end of May.
Add the payments from the GM deal ($2.8 billion) to the value of the shares ($5.2 billion) and the total is $8 billion. Subtract that from the original loan and taxpayers still face a loss in nominal terms of about $2.8 billion. That is better than when GM shares were worth less than now, but the stock would still have to rise by 55 per cent for taxpayers to break even.
Trying to get some sense of the numbers, I contacted the Department of Finance in 2011 and again recently. In both instances, I was given only an email with numbers, but no formal documents. In 2011, Finance even refused to provide a copy of the 2009 federal-Ontario bailout agreement. The Harper government apparently considers taxpayers mere observers in the biggest corporate-welfare bailout in decades.
In contrast, in the U.S., the government must report to Congress, publicly and monthly, about the Troubled Asset Relief Program. If one accepts the U.S. Treasury’s numbers, TARP’s most recent report estimates U.S. taxpayers will face a nominal loss of $20 billion on their automotive bailout when everything is wrapped up.
The Canada-U.S. taxpayer bailout was always a bad idea. Chrysler came begging to the American government in 1979. It was rescued courtesy of a government loan and a quasi-bankruptcy that left creditors with 30 cents on the dollar.
Just as unfortunate, politicians raced to micromanage the economy amid job losses in 2009. They did that rather than accept that some corporations fail (5,420 of them did in 2009 in Canada), others succeed, recessions end and employment will pick up.
Since the depths of the recession in 2009, 830,000 new jobs have been created in Canada. That recovery dwarfs any recovery in the auto industry, where the combined employee count at GM and Chrysler declined from 22,000 in 2009 to about 19,000 now.
All the bailout did was prop up weak businesses at the expense of better-run competitors. It also diverted the taxes paid by other businesses and taxpayers to GM and Chrysler.
Given the example set by governments in 1979 and 2009, Canadians might well expect companies — perhaps the same companies — to seek more bailouts the next time they run into trouble.
Mark Milke is a senior fellow at the Fraser Institute.
