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In the run up to his 2015 State of the Union speech, President Barack Obama was once again trumpeting his administration’s intervention in Detroit.
"Last month, the rescue of the auto industry officially came to an end," Obama said Jan. 7 in Detroit. "The auto companies have now repaid taxpayers every dime and more of what my administration invested in."
In December, the Treasury Department announced it sold the remainder of its 54.9 million shares in Ally Financial — formerly, General Motor’s financing service, GMAC — for $1.3 billion. With the deal, Treasury Secretary Jack Lew said the United States was "winding down the Auto Industry Financing Program," the federal program that saved the auto industry— or bailed it out, depending on your view.
Back in 2012, we looked at Obama’s campaign claim that GM and Chrysler "repaid their loans." We said it was Half True, partially because the government still owned stock in both automakers and it was too soon to say if taxpayers would recoup their investment.
But it’s two years later, and the Treasury has since sold off most of its holdings in both companies. So we decided to take a look at this issue again.
There are several circumstances that make this confusing and complicated. For starters, the bailout of the auto industry started in the waning weeks of President George W. Bush’s tenure. It continued during the early months of the Obama administration.
All told, the Treasury Department reported that the program cost taxpayers $79.7 billion, of which $70.4 billion was recovered. Under that estimate, the program lost about $9.3 billion. In April, the Congressional Budget Office estimated that the program would end up costing about $14 billion.
The Obama administration, however, makes the case that only $57.3 billion of the investment came under their watch and therefore that should be all that they’re accountable for.
Let’s review the timeline, starting in 2008: Bush secured $700 billion to bailout the financial institutions under the Troubled Asset Relief Program in October 2008. In November of that year, Obama was elected and soon after met with Bush to discuss the transition. It was during those early meetings that Obama began to lobby Bush to provide some financial assistance for the auto industry, according to reports.
The New York Times wrote Bush had "balked at allowing the automakers to tap into the $700 billion bailout fund, despite warnings ... that General Motors might not survive the year."
A month later, Bush announced a $17.4 billion bailout for Chrysler and GM that provided short-term financial relief through March 2009. He handed off to the incoming Obama administration the decision on how the companies would have to restructure themselves. The investment would grow to about $23 billion in short-term loans by the time Bush left office.
As Politico noted in December 2008, Bush’s move was a "reversal for the White House," adding that, "President-elect Barack Obama and Democrats had long advocated that course, and Bush had resisted it."
The New York Times reported that Obama "embraced the plan," though he did not comment on the details.
To get to Obama’s claim that the "auto companies have now repaid taxpayers every dime and more of what my administration invested in," the White House is taking credit for all of the money recovered from the auto companies in the last six years.
This is somewhat problematic. Why? Obama is essentially saying ignore the money Bush invested and only look at what my administration spent on the bailout when calculating the "expenses" side of the ledger. But for Obama to make the claim he has recovered everything he invested "and more," he’s including money paid back on loans also given out under Bush.
You might ask, "Why not just look to see which loans were repaid?" It’s a good question. Unfortunately, it’s a lot more complicated than that.
Both GM and Chrysler went through structured bankruptcies in 2009 to remain viable. The process resulted in both automakers essentially killing off their old companies and creating New GM and New Chrysler. During that process, most of their debt was converted into preferred and common stock owned largely by the government that would gradually be sold off (in the case of Chrysler, it was acquired by Italian carmaker Fiat, while the GM stock was publicly offered and later partially bought back by New GM).
Some of the dealings resulted in profit, some did not. Additionally, Old GM and Old Chrysler were saddled with some debt that has not been recovered.
Because most of the debt was in stock, it’s difficult to know if the money coming back into the Treasury was from the Bush loans or from the Obama administration.
At the same time, it’s possible the Treasury would not have recovered any of the investment from either administration had Obama’s White House not taken the steps to restructure the companies through a managed bankruptcy.
Obama created a taskforce upon taking office to determine how to proceed with the auto companies. They had three options: no further government assistance; more loans with no strings attached; or more financial resources on the condition the companies would restructure. In both cases, the third option was chosen. The administration had a heavy hand in the restructuring, forcing the sale of Chrysler to Fiat and requiring GM to fire its CEO, close plants, shrink staff and eliminate lines like Pontiac and Saturn.
The general consensus from both a legislative panel and experts is that the intervention by the administration kept both companies out of long, drawn out bankruptcies that could have resulted in the liquidation of GM and Chrysler. That likely would have impacted Ford as well (Ford didn’t take government money, but lobbied for GM and Chrysler to receive assistance, noting that the three automakers shared parts suppliers) and threatened the U.S. auto industry existence.
It’s impossible to know what would have happened had the administration not stepped in. However, it’s fair to say right now both companies are profitable and American car makers are in stable positions. Additionally, a $9 billion hit is less than the $24 billion loss the Treasury predicted in 2011.
Obama said, "The auto companies have now repaid taxpayers every dime and more of what my administration invested in."
We’ll note that losses from automaker loans were expected to be higher, and the action taken by the Obama administration resulted in GM and Chrysler paying back the bulk of their loans.
But to say they've paid back "every dime and more," requires considerable cherry-picking. Obama doesn’t count any outstanding loans made by the Bush administration, which seem to have been made with Obama's quiet support and which were restructured (resulting in some losses) under the bankruptcy Obama's Treasury helped manage. And to get into the black, he counts money the automakers paid back for Bush administration loans.
The statement contains an element of truth but ignores facts that would give a different impression. That’s Mostly False.
Email interview with Brandi Hoffine, spokeswoman for the White House, Jan 19, 2015
Email interview with Adam Hodge, spokesman for the Treasury Department, Jan. 19, 2015
U.S. Department of the Treasury, "TARP Investment Program Transaction Reports," accessed Jan. 19, 2015
Federal Reserve Bank of Chicago, "Detroit back from the brink? Auto industry crisis and restructuring, 2008–11," May 23, 2012
Email interview with James Rubenstein, Miami (OH) University Professor of Geography, Jan. 20, 2015
Email interview with Paul Kiel, Reporter for ProPublica, Jan. 20, 2015
U.S. Department of the Treasury, "Treasury Sells Entire Ally Financial Stake, Taking Total Recovery to $19.6 Billion and Closing Auto Rescue Program," Dec. 19, 2014
U.S. Department of the Treasury, "TARP Tracker from October 2008 to date," accessed Jan. 19, 2015
Congressional Budget Office, "Report on the Troubled Asset Relief Program," April 2014
ProPublica, Bailout Recipients, Jan. 12, 2015
New York Times, "U.S. Declares Bank and Auto Bailouts Over, and Profitable," Dec. 19, 2014
New York Times, "Bush Aids Detroit, but Hard Choices Wait for Obama," Dec. 19, 2008
Politico, "Bush announces $17.4 billion auto bailout," Dec. 19, 2008
New York Times, "Obama Asks Bush to Provide Help for Automakers," Nov. 10, 2008
PolitiFact, "President Barack Obama campaign video says auto companies 'repaid their loans'," March 21, 2012
PolitiFact, "CEO says GM has repaid government loans in full," April 27, 2010
PolitiFact, "Did President Obama save the auto industry?" Sept. 6, 2012
U.S. Government Publishing Office, "An Update on TARP Support for the Domestic Automotive Industry," Jan. 13, 2011
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