Howes: Obama’s fraught bet on Detroit autos vindicated
At 12:01 p.m. Friday, the president rightly credited with saving Detroit’s auto industry will leave office.
Barack Obama took his own oath eight years ago knowing one of his first big decisions would be whether to extend his predecessor’s financial lifeline to the likes of General Motors Corp. and Chrysler Group LLC — or allow one or both of them to collapse.
The potential consequences, political as much as economic, persuaded the new president to commit some $80 billion in taxpayer dollars to rescue the industry from itself. And that decision has made all the difference for the automakers and American manufacturing, for the recovery of Detroit and Michigan, for the United Auto Workers and auto communities across the industrial heartland.
The alternative — an uncontrolled collapse that would ensnare the industry’s sprawling supply base and endanger other automakers, including Ford Motor Co., Toyota Motor Corp. and Honda Motor Co. — was deemed worse than the ideological blowback aimed at the new president then and now.
He made the right call, and so would a Republican faced with similar circumstances. The reasons are simple: Despite epic shrinkage in its workforce and footprint, the Detroit-based auto industry remains foundational to the U.S. economy, and the people drawing paychecks or pensions from it remain critical players in the electoral imperative known as the industrial Midwest.
Just ask President-elect Donald Trump and the woman he beat to win the White House. He’ll be taking the oath of office Friday instead of Hillary Clinton largely because his economic message on trade, immigration and America-first manufacturing resonated with voters in auto-producing states.
“President Obama saved this industry ... and he did it at a time that was not popular,” says U.S. Rep. Debbie Dingell, the Dearborn Democrat and retired GM executive who warned the Clinton camp of Trump’s appeal in states like Michigan. “Democrats weren’t even happy about it. What President Obama did was help create a competitive industry.”
She’s got a point, however strongly the departing president’s many critics likely would disagree. The arc of history is delivering inconvenient truths, too, none of which invalidate Obama’s initial decision to bail out a cornerstone of American industry. But they do give it much-needed context.
The bailout’s comparative success, tallied in terms of record North American profits, stable U.S. market share and critical acclaim for Detroit’s metal, is validation enough — even if the lagging share prices of GM, Ford and Fiat Chrysler Automobiles NV may not be.
Viewed with the hindsight of two terms, Obama’s automotive legacy is mixed. It is a contradictory pastiche of actions and policies that followed the industry’s historic rescue with a misguided bias for small, hybridized products that don’t sell well, as well as misjudged assumptions about the long-term direction of oil prices.
On those two points, Team Obama couldn’t have called it much worse. Instead, the revival of American energy production, coupled with more fuel-efficient engines in popular pickups and SUVs, are moderating consumption and restraining prices.
The results are gas prices closer to $2-a-gallon in some states than $4-a-gallon; myriad manufacturers fielding a growing array of alternative-powertrain vehicles that account for less than 3 percent of the market; and an explosion in demand for pickups and SUVs at the expense of traditional car segments that at least one automaker, FCA, considers close to permanent.
The aggressive Corporate Average Fuel Economy, or CAFE, standards Washington foisted on the industry in the very early days of its recovery — and moved to cement last week in a last-minute rule-making by the Environmental Protection Agency — are forcing automakers to make compromises on engines, alternative powertrains and lightweight materials their customers don’t necessarily want.
“In terms of cost impact, the CAFE effect is a really big deal,” David Cole, chairman emeritus of Center for Automotive Research in Ann Arbor, says of the Obama legacy for the industry.
The irony is that the president credited with “saving” the Detroit auto industry in 2009 is the same one whose EPA recently fast-tracked the so-called “mid-cycle review” of its tough fuel-economy rules. The move, coming amid strong demand for larger trucks and SUVs, puts enormous cost pressure on all automakers.
Another irony: Obama and his surrogates lambasted Republican Mitt Romney in 2012 for a New York Times op-ed headlined “Let Detroit Go Bankrupt.” But he’s the president who essentially ordered two of Detroit’s automakers into bankruptcy three years earlier because the U.S. Treasury was the lender of last resort.
Still, the Obama presidency helped deliver profound change to a Detroit auto industry that spent a lot of years, in the words of former Ford CEO Alan Mulally, “going out of business.” The discipline of the bailouts, and Ford’s parallel restructuring financed with private capital, fundamentally changed the industry’s trajectory.
The president’s auto task force used the existential crisis to show how the bankruptcy code could be used dramatically and quickly, could exorcise the demons of bad habits and bad deals, and could do it all without sacrificing vital connections to current and would-be customers.
GM eliminated half of its North American brands, rationalized its dealer and manufacturing networks. Italy’s Fiat SpA essentially absorbed Chrysler, and both Detroit automakers — with the help of the feds — used the process to the advantage of the UAW and the disadvantage of allegedly secured bondholders.
The auto task force also used GM’s exit from bankruptcy to shaft salaried retirees of the former Delphi Corp., the one-time GM supplier unit whose exit from a 2005 bankruptcy was deemed critical to getting GM out of Chapter 11. The price: huge pension cuts for Delphi’s salaried retirees, many of whom are still battling the government in federal court.
That’s a part of the president’s auto legacy, too. So is a muscular regulatory posture that has cranked fines for corporate misbehavior into the billions, criminalized the most egregious behavior and signaled that deliberate violation of U.S. emissions standards would draw expensive penalties. Exhibit No. 1 is Volkswagen AG.
Detroit and the nation will never know what would have befallen the hometown industry had Obama (and President George Bush before him) decided against throwing the automakers that financial lifeline. What is knowable is the state of the industry today, and it’s stronger now than any time since the 1960s.
That didn’t happen by accident, without the hard work of thousands or a decision by the president to give Detroit one more shot.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.