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Comment by snprbob86 | Hacker News Reader

The subtitle says: "ONLY AMERICAN CAR COMPANY TO HAVE PAID BACK GOVERNMENT"

Assuming that's true, I'm not sure whether I should be proud of Tesla, ashamed of our Government, or angered at other car companies. Probably all three...

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Why be mad at anything? At most be mad at car makers for running so leveraged that they had liquidity problems at the same time that all the major lenders in the financial system ran into solvency problems (and feel free to be mad at the financial sector)

But given that, it was _excellent_ government policy to guarantee loans to the automakers, just from a cost/benefit perspective. And there's no shame in not going above and beyond the repayment terms of a loan - but good for Tesla for doing so (and great marketing).

GM was in trouble long before the 2008 crash: http://www.thetruthaboutcars.com/2008/06/general-motors-deat... (in June 2008, they were already up to part 181 in their series)

Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable.

> Also, guaranteed loans for automakers might be excellent compared to other government policy, but given that Ford didn't take a loan, and there are many foreign companies which didn't need loans, the existence of any benefit from subsidizing more poorly-run automakers is questionable.

FWIW, Ford's CEO disagreed, which is both why he went to Congress in 2008 to argue for the bailout, and defended the bailout in 2012 as having been good for the country, the industry, and Ford even though Ford wasn't a direct beneficiary [1].

[1] http://articles.latimes.com/2012/apr/19/news/la-ol-ford-ceo-...

Well yeah. The bailout terms were heavily slanted towards the unions. Of course Ford preferred the bailout to competing against some company which might buy all the assets at bankruptcy prices and then hire workers on much more favorable terms.

>some company which might buy all the assets at bankruptcy prices and then hire workers on much more favorable terms.

You do realise that care companies are one of the most asset-heavy companies in the world right? Nobody would have been able to pick up the pieces in a credit-crunch recession. Independently of that, there would still have been a long period between the shutdown of the company and it being picked up, and in the meantime tier-N companies would all suffer greatly as well.

>Nobody would have been able to pick up the pieces in a credit-crunch recession.

All the pieces? No. But some. With a chance at picking up an additional 10+% of the US market, you don't think Toyota or similar could get enough credit to buy a couple factories and hire the better half of the laid-off workers?

> the existence of any benefit from subsidizing more poorly-run automakers is questionable

The automotive sector is one of the few manufacturing industries which hasn't totally packed up its bags and moved out of the USA entirely. They employ a lot of workers in politically important states and have powerful labor unions.

I live in an area that's been through tough times when a lot of industry went overseas c. 1980-2000, and much of the local political attitude is "government should do whatever it takes to keep plants from closing" -- not just among those directly employed by automakers and dozens of smaller suppliers, but among the entire community, since there's a feeling that dollars from those factory jobs indirectly support every local business.

I feel that the automotive bailout was a direct bribe to communities like mine, to calm the anger over the Wall Street bailouts by giving us a piece of the pie.

I think the whole thing stank, and voted accordingly -- not that I have any illusions that the current or future US government is or will be any better than it was in 2008-2009.

Ford did get a $5.9B loan from the same DOE program as Tesla though.

https://lpo.energy.gov/our-projects/

I'm not an economist, but this is how I understand it. GM paid back it's debt in full, but it paid most of it back in stock. The US government has sold some of it, so it's gotten about half of it's bailout back in cash. But, it still has a ton of GM stock. It's selling the stock slowly to avoid disrupting the market.

That being said, the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this.

Source: http://www.fool.com/investing/general/2013/05/09/when-will-g...

This announcement doesn't really have anything to do with GM (or even apply to them) in anything but the "we gave them a loan" sense.

From the linked article:

"This program is often confused with the financial bailouts provided to the then bankrupt GM and Chrysler, who were ineligible for the ATVM program, because a requirement of that program was good financial health."

Yeah, I thought that was confusing. "We're the only", "but in some circumstances we're not really talking about everyone". I thought it was worth answering the question "did GM pay back it's loan" because GM is the largest and most notorious recipient of US loan money.

Maybe Tesla really did mean "We're the only American company who received an ATVM loan to pay it back." But, if so, they're being intentionally misleading.

>> GM paid back it's debt in full, but it paid most of it back in stock. ... the government needs to sell at something like $75/share to make their money back, but it's at $33 as I write this.

So they "paid" their debt with something that 1) isn't worth enough to cover their debt and may never be 2) gives the government a financial interest in continuing to keep them afloat.

Pretty nice deal if you can get it.

I'm sure there was some money wasted along the way, but this makes me think of the often-quoted (around here at least) anecdote that VCs succeed not by getting decent returns across the board but by having one or two "home runs".

If Tesla is the home run that this ATVM program made possible, maybe it doesn't matter if all the rest end up defaulting on the loans (which this article doesn't even imply, Tesla seems to have just paid back the loan early). Obviously the economics of government loans aren't exactly the same as those of VC investments, but making the large-scale production of electric cars economically feasible is a huge accomplishment that seems like it'd be worth the cost of this whole program.

As you noted, the problem is that the government bought debt, not equity, so they don't share in the upside that would make this a financial home run that makes up for other failures. That being said, the government isn't in this to make money, they're in it for the broader benefits that will spillover outside of the individual company receiving financing. In that sense the VC analogy could work, because a major successful electric car company in the US probably would be a "home run" for the country (and the world) on several dimensions, more than making up for losses on the way.

Who ever pays back the government for stuff? It's largely besides the point. The government didn't bail out say GM because it wanted to get a return on its investment. It did so because of the fear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment. If the car companies manage to pay back the government, great. Even if they don't, that wasn't really the point.

Yet GM still went bankrupt...just a few months later. People forget that. So what was really gained?

There's bankruptcy as in a controlled restructuring, and then there is bankruptcy as in a failure of the business with ripple effects throughout the economy. What GM went through was the former, and it was foreseen at the time of the government's investment.

There was nothing to keep them from going through a controlled bankruptcy at the start of it.

People forget just how amazingly tight the credit markets were at that time. Extremely tight.

To keep it short, the bailouts of both the auto sector and the banks were bad, but probably the least bad of a bunch of very worse options. The moral hazard problems with both of them are significant. (It's personally good to fail at the same time as everyone else, because you get bailed out, while we really want systems where failures are independent.)

fear that letting Detroit go bankrupt would have a domino effect that would leave a gaping crater in employment

You mean like the +20% currently unemployed in Detroit? The best thing about Detroit is that one day it will be used as a case study of why entitlements don't work out the way people think they do.

I was using "Detroit" in this context as a metaphor for the car industry. GM going bankrupt would bankrupt a ton of suppliers spread throughout the midwest.

As for Detroit, its problem has nothing to do with entitlements. Detroit was never New York or San Francisco, after all, in terms of entitlements. The midwestern industrial cities all have the same problem, and it's not entitlements, it's the automation of American manufacturing. Optimists tell me that its a good thing and any day now there will be new jobs for these folks, but looking at cities like Detroit, Buffalo, etc, that have been gutted for decades now doesn't make me optimistic.

Read up on the "Model Cities Program" and I think you'll see what I was talking about, even in regards to automation.

In terms of if GM had gone bankrupt, I think any supplier that was competitive at the time would still be here today. They may be supplying their goods to a different manufacture along with some other hardships, but companies that are competitive and in control of their workforce can make those changes when the time comes.

I think you underestimate the size and breadth of car manufacturing supply chains. Its very common for suppliers to build new factories/warehouses near a car manufacturing plant solely for them. You can just "make changes" if the plant is shut down.

I probably do underestimate it since I haven't worked directly in that industry, but I completely realize that fact. That is why I mentioned hardships. It might mean they have to close/resize assets and entire towns could be effected, but to say it would wipe them out I think is a stretch.

What's the problem with companies paying back loans when they "need" to (i.e. when the loan comes to an end)?

more like to give an example?

It can leave you exposed if you're ever forced to pay it back by the government. If the timing is wrong it might be hard to raise the money.

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