Obama: Auto industry revival justifies bailouts
Obama: Auto industry revival justifies bailouts
Automotive News | July 30, 2010 – 7:22 am EST
UPDATED: 7/30/10 3:40 p.m. ET
|DETROIT (Bloomberg) — President Barack Obama, in the heart of the U.S. auto industry, told a crowd of workers that the government bailouts of General Motors Co. and Chrysler Group LLC are giving taxpayers a return on their investment.
Heading into a congressional election season in which polls show the public skeptical about the $84.8 billion rescue and anxious about economy, Obama used the backdrop of Detroit-area plants owned by GM and Chrysler to promote what he says is an industry revival that has saved more than a million jobs.
“The fact that we’re standing in this magnificent factory today is a testament to the decisions we made,” Obama said at a Chrysler plant that recently added a second shift of workers to build the Jeep Grand Cherokee SUV.
Obama told about 1,000 employees at the factory that, if his opponents had been successful in blocking aid for automakers, their jobs might not exist. Their efforts are “proving the naysayers wrong,” he said.
“They said we should just walk away and let those jobs go,” Obama said. “Today, this industry is growing stronger. It’s creating new jobs.”
Voters aren’t persuaded. A Bloomberg National Poll conducted July 9-12 that shows the federal assistance package to automobile companies is becoming less popular: 48 percent say they became less supportive in recent months versus 17 percent who say they have become more supportive.
Steve Rattner, the former head of the president’s automotive task force, said that perception is disappointing.
“It appears that those of us behind it haven’t succeeded in convincing people that it’s worked,” he said in an interview.
Since GM and Chrysler exited bankruptcy a little more than a year ago, the industry — including Ford Motor Co., which didn’t seek federal aid — has re-hired 55,000 workers after shedding 334,000 in the year before.
“History will record that we did the right thing” by stepping in, Ronald Bloom, the administration’s senior counselor for manufacturing policy, said today in an interview on Bloomberg Television. The administration’s auto team was “asked to put together a tough-minded plan to put these companies back on their feet as fast as we could. So far, so good,” he said.
All three U.S. car companies reported a profit for the first quarter of 2010, the first time that has happened since 2004. In addition, GM is poised to undertake an initial public offering this year, and Chrysler Chief Executive Officer Sergio Marchionne has said his company likely will do so in 2011.
The administrations of Obama and his predecessor, George W. Bush, committed a total of $85 billion to rescue the automakers, aid suppliers and prop up the financing arms of GM and Chrysler. About $67 billion in loans and equity investments are still outstanding, according to administration figures.
Because of $5 billion in financing aid from the Treasury Department’s automotive supplier support program, the auto parts industry is also becoming more stable, the White House said in a 5-page report on the auto industry issued Thursday.
"After experiencing 54 bankruptcies in early 2009, bankruptcy filings have largely subsided since October 2009," the report said. "Based on industry surveys, only 10 percent of suppliers are in violation of their debt covenants."
White House press secretary Robert Gibbs said yesterday the government is “on the path towards” getting repaid the $59.4 billion committed to the companies by the Obama administration.
GM has already repaid $6.7 billion in loans and the U.S. stands to recoup tens of billions of dollars more when the company conducts an initial public offering of stock later this year.
“We’re hopeful that General Motors can go public later this year, and we’re hopeful that after that we’ll be able to move our shares out,” Bloom said. “At this moment we think things are going well.”
The stock offering is central to the government’s expectations of getting repaid. For the U.S. to recoup all of its $42.2 billion investment in GM, the company would have to be worth at least $66 billion and possibly as much as $80 billion, depending on when the government sells its stock. GM’s implied equity value is about $53 billion based on its bond price.
Obama stopped first at Chrysler’s Jefferson North plant, which makes the Jeep Grand Cherokee. The facility employed 2,134 workers in 2007, before the financial crisis and recession. It has 2,833 employees now, after the company added a second shift. The company today announced that its Sterling Heights, Michigan, plant will stay open instead of closing in 2012. Chrysler plans to add a second shift and about 900 jobs there in the first quarter of 2011.
Obama said failing to aid GM and Chrysler would have led to a “brutal, irreversible shock” to the national economy and the growing payrolls at the Michigan plants show steps taken by the government worked.
“Our strategy was to get this company and this industry back on its feet,” he said after a tour of the Chrysler plant led by Marchionne. “There is no doubt that the auto industry is growing stronger.”
At the Hamtramck GM plant, Obama’s second stop, the president was accompanied by GM Chairman and Chief Executive Officer Edward Whitacre. The facility is one of nine that GM decided to keep open during a scheduled summer shutdown. It had 1,789 workers before the crash and has about 1,100 now.
Obama is scheduled to stop at a Ford plant next week in Chicago, where the company is adding 1,200 jobs to produce its new Explorer sport-utility vehicle.
The visit to the GM plant provided Obama with an opportunity to highlight another aspect of his economic plan: investments in alternative sources of energy. The Chevrolet Volt hybrid car, scheduled to go on sale later this year, is being built at the plant.
The president’s sales pitch is tempered by some sobering forecasts. While the industry has added 55,000 jobs since June 2009, auto manufacturing in Michigan is on a decline. A 2009 University of Michigan study found that the state would end up with 95,500 blue-collar auto manufacturing jobs by the end of 2011, compared with 172,350 in 2008. The state’s unemployment rate was 13.2 percent in June compared with the national rate of 9.5 percent.