But Cash for Clunkers, which cost about $2.8 billion, looks about as expensive as Goldschlager looks gold-dense when compared to the funds given to auto companies directly. The first annual report of the Office of Financial Stability shows that the US government still has almost $15 billion in loans out to Chrysler, GM, and GMAC. The figure below shows how these loans were converted into government ownership of Chrysler and GM.
Now the government at least bought into GM near a historic low point for the company, so any uptick could generate some returns but the company’s ownership has been radically reorganized. Chrysler will face challenges from being majority-owned by VEBA, a representative of employees and their pension funds. GM faces a less clear future being owened largely by governments that say they don't want to own auto companies. Further complicating GM is that the company is co-owned by the American and Canadian government.
Now let’s think this through. We now have a large firm, with high fixed costs, a lagged cycle for innovation and high costs to making one year of bad products, owned by multiple governments, facing tough international competition. I think I’ve seen this game before, in fact I think applying it to Airbus helped win Paul Krugman a Nobel Prize. Yet the now classic Boeing-Airbus game doesn’t say that governments should dump their corporate investments but should instead encourage domestic production in such markets.