In previous post, I featured a recent Congressional Budget Office (CBO) report that undercut the idea that aid to the auto industry is really a loan. The report, which provided estimated subsidy rates--or expected losses to the government--for pieces of the TARP, gave the financial sector low subsidy rates, ranging from 18 percent subsidy for the Capital Purhcase Program to 53 percent on the AIG injections. Yet GM and its (now holding company) GMAC had subsidy rates of 63 percent.
A report released Friday from the Brookings Institution chides that looking only at the subsidy rate may be too narrow a view. In the report, Measuring the Cost of the TARP, Brookings scholar Douglas J. Elliott indicates that there may be both differential cost and differential benefit.
This matters because some uses of TARP funds are expected to lose much more than others. CBO projects that funds for the automakers and AIG are likely to suffer losses of about 55 cents on the dollar while the main bank rescue package loses only 18 cents, less than one third as much. Perhaps the greater losses are outweighed by larger economic benefits to the nation, but we cannot honestly make that choice without the right cost estimates.
Elliott, whose main point is really about how we should use the subsidy rate to measure TARP cots, makes a good point. If we want to be serious about a cost-benefit analysis, we need to include the benefit as well. This includes taking into account jobs saved, tax revenue generated, etc by continuing to have GM and others make cars.
Sadly for the automakers, the production estimates that they need to use the federal funding effectively are not coming to bear. As Jim Manzi points out at The Atlantic's new business channel, GM is still not selling cars. Actual annualized sales for December estimate 10.3 million units, well below GM's Baseline of 12 million and even below its "downside" situation of 10.5 million. It may be that December was simply a very under performing month. Especially if tax cuts and stimulus checks go though we may see more purchases, but only for a short while.
Again, the auto industy stimulus may have large benefits to the economy but calling them loans is simply not warrented at this time.