Friday, January 16, 2009

The Auto "Loans"

A large part of the argumentation concerning the allocation of TARP funds to the auto industry belied a "we're good for it mentality." The auto industry, the argument went, was going through a rough moment and would recover. When it did it would pay back its loans. This followed the logic of the Chrysler bailout during the Carter administration. Unfortunately, we are not in that situation. Despite talk of loans, the government released information today indicating that the financial sector is more likely to pay back than the auto industry.

The figure below is from the first Congressional Budget Office (CBO) report on the TARP, released this afternoon. Click the image for a larger view.

Sorry its a bit hard to read the figure. The image gives the amount given by type of institution and the expected "Subsidy." This is essentially how much money the government does not expect to get back from this disbursement. The total subsidy rate for all TARP money so far is 18 percent. This means that the government expects to recoup 82 percent of its expenditure.

For the auto "loans" that figure is vastly different. For GMAC which received $4 billion the subsidy is expected to be $3 billion, a subsidy rate of 63 percent. The separate loans to the auto industry are valued in exactly the same 63 percent subsidy rate. So while the total allocation to GMAC and all auto industry was small, only $8 billion in this report (more has been given since). The expected repayment is lower than the massive amounts given to the financial sector.

On a plus for the whole thing, GM released new, "more conservative market volume assumptions" yesterday.

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