The bailouts worked, the story goes, because General Motors and Chrysler still exist and their stocks are trading above $0. (This is known in some circles as "Bamaro logic.") Yet existence is a lousy measure of success, given that the car makers were able to shed billions of dollars of debt and labor obligations in their government-managed and -financed bankruptcies.
And while GM, Chrysler and Ford may be out of financial danger, for now, their political liabilities continue to multiply. The Bush-Obama bailout isn't over because its terms increase the chances that one or more of the Big Three end up in trouble again.
That was the real issue for the White House because of its potential damage to union labor. So it proceeded to orchestrate an out-of-court prepackaged bankruptcy. Bond holders would have taken a severe haircut no matter what, but Mr. Obama's force majeure subordinated their rights to the UAW's. Even Steve Rattner, who led the auto task force and is its most ardent defender, conceded to the Detroit News in December that "We didn't ask any active worker to cut his or her pay, we didn't ask them to sacrifice any of their pension and we maybe could have asked them to do a little bit more."
Thus the bailout become a tool for less discipline, not more, when Chrysler entered bankruptcy with $8.1 billion in government financing and GM with $30.1 billion. The government became the majority shareholder in the latter and the UAW in the former. Taxpayers still own 26% of GM, and shares will need to rise to $53 from their current $26 to recoup the Bush-Obama investment.
The point is that the auto bailout isn't an example of enlightened government revitalizing an industry after a market failure. It is a bailout in the wake of failed government policies and bad management that may keep going and going as Washington does whatever it takes to make sure Detroit keeps doing its political bidding.