Howes: Obama’s auto bailout legacy fraught with choices
Nearly seven years ago, President Barack Obama defied Republicans, the polls and American tradition to rescue the Detroit auto industry from itself.
The $85 billion gamble paid off. The U.S. Treasury recovered the vast majority of its investments in what are now General Motors Co. and Fiat Chrysler Automobiles NV. Hundreds of thousands of jobs in the industrial Midwest were saved or created, many of them in Michigan.
“We had a choice to make,” the president told a friendly crowd gathered at the UAW-GM Human Resources Center after a brief tour of the Detroit auto show. “With markets in free fall, there were no private companies, no private investors that would take a chance on you. Think what that would have meant for America. GM and Chrysler would not be here today. In exchange for help, we demanded responsibility.”
GM today is more profitable in its home market than any time in the last 50 years. A Detroit given up for dead amid political corruption atop City Hall and the global financial meltdown is charting a new future. That’s as much a testament to auto bailouts as a municipal bankruptcy that unspooled and concluded five years later without direct intervention from Washington.
Would any president, Republican or Democrat, have done otherwise for the bellwether U.S. auto industry, risking economic collapse and political peril in the heartland that remains one of the true presidential battlegrounds in any race for the White House? No, as Obama demonstrated and President George W. Bush suggests in his memoir.
But reality is more complicated than the litany of accomplishments touted this week by Obama and his White House press office. Just ask the dealers who lost their businesses; the Ford Motor Co. leaders who were warned against saying they “didn’t take the money” in ad campaigns to sell pickups; the bondholders in GM and Chrysler whose secured interests were subordinated in bankruptcy to the unsecured interests of the United Auto Workers.
Ask the salaried retirees of Delphi Corp., roughly 22,000 of them. Their pensions were sacrificed as the price of getting GM and Delphi out of bankruptcy, even as union pensions and the pensions of longtime salaried colleagues at GM remained mostly intact. They’re legacies of the bailouts, too, and they’re still battling the government in federal court for answers and compensation.
The legacy of the Obama auto bailouts is neither simple nor uncomplicated. It was not a theoretical choice between government and private markets, not when global finance markets essentially froze in late 2008 and the first part of 2009. Who, exactly, was willing to back what would have been the largest debtor-in-possession financing in American history — and do it quickly?
No one. Decisions, presidential or mundane, seldom can be removed from their historical context. A collapsing Detroit auto industry endangered more than the workforces of two automakers. It threatened an industry that is an engine of the American economy, including Ford, the U.S. operations of Toyota Motor Corp., Honda Motor Co. and myriad suppliers.
Like or loathe his politics, the president and his auto task force made tough calls to save companies that spent decades “going out of business,” as former Ford CEO Alan Mulally frequently said. They rescued the institution of the UAW whose leaders’ increasing demands of the automakers essentially created huge pension-and-health care providers who happened to build cars and trucks.
They ignored unfavorable polls, twisted bankruptcy procedures later upheld by federal courts, and defied tradition in American business to prevent collapse of a cornerstone industry to the national economy. Obama and his auto task force didn’t “Let Detroit go Bankrupt” in the words of the infamous headline on Mitt Romney’s New York Times op-ed; they made it go bankrupt.
In the process, they (or the people they tapped to run GM and what is now FCA) cashiered entire cadres of leadership at the bankrupt companies. They demanded rationalization of brands, dealers and plant capacity that the Kings of Detroit for too long believed they could carry. They barred the UAW from striking companies rescued with cash fronted by American taxpayers.
A net positive? It has been for this town. GM is running at or above double-digit operating margins in its North American business and booking strong returns on invested capital. FCA’s car and truck sales, powered especially by its iconic Jeep brand, continues to out-perform expectations. Shares in Delphi, a necessary by-product of the bailout, have quadrupled in value since their initial public offering in 2011.
Still, rescuing Detroit from itself exacted costs that cannot be excised from history because they’re deemed inconvenient to the narrative preferred by the president and his handlers. In his 30-minute walk of the North American International Auto Show, Obama focused on the hybrids and electric vehicles his policies are designed to promote.
The problem: the market isn’t embracing them the way the politicians intended. Electrics and hybrids accounted for less than 2.5 percent of the U.S. market last year, despite massive investment in them by Detroit’s automakers and their foreign-owned rivals.
Tough federal fuel-economy mandates that require fleets to deliver a corporate average of 54.5 mpg by 2025 — hailed by the White House Press Office in background briefings — are instead emerging as a major obstacle industry leaders are not at all sure they can hurdle successfully.
Not if gas prices stay low or moderately low for long. And not if the buying public’s obvious love affair with trucks, crossovers and SUVs burns as hotly as it has the past few years. Team Obama can tout their policies all they want, but the public isn’t really buying what they’re hoping to sell — not now, anyway.
Nor are the equity markets. Shares in GM and Ford continue to trade in a narrow band, evidence that smart money remains unconvinced the earnings powerhouses of today can successfully navigate another recession without outside help. They also want evidence Detroit can parry the competitive threat of Silicon Valley and come out winners, at least some of the time.
Seven years ago, Detroit got a second chance. There won’t be a third one.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.