Barack Obama’s first tough calls as president proved to be more right than wrong.
September 6, 2012
Howes: No talk of auto bailouts’ ugly side
Dems cite success at convention without hint of cost, losers
By DANIEL HOWES
Detroit’s auto bailout is doing a star turn at this week’s Democratic National Convention, a nut-and-bolts reminder that one of Barack Obama’s first tough calls as president proved to be more right than wrong.
General Motors Co., despite well-publicized troubles in Europe and a sagging share price, is solidly profitable in its bellwether North American market with 10 straight quarters in the black. Chrysler Group LLC, effectively a unit of Fiat SpA of Italy, continues to outperform sales expectations and now accounts for nearly all the profits in the transatlantic group.
As if on cue for the stretch-run to the November election, sales of cars and trucks last month reached their highest point in four years thanks to low interest rates, aggressive incentive programs and an aggregate age of vehicles in the United States now approaching 11 years old. Looking for a definition of pent-up demand? This is about as close as it gets.
End of story, right? Wrong.
For as much as Democrats, United Auto Workers President Bob King and President Obama himself hail the auto bailout as a political winner with voters and Exhibit No. 1 in the vindication of the president’s decision-making prowess, the auto bailouts also produced a trail of uglies and strong-arm tactics you won’t hear about at the convention in Charlotte.
In moving to get Chrysler through bankruptcy and into the hands of Fiat CEO Sergio Marchionne, the president’s auto task force bullied Chrysler bondholders and managed successfully to place the unsecured claims of the UAW ahead of secured creditors.
In moving to get GM back to independence, the Treasury Department sold part of its equity stake in the automaker at an initial public offering. But the shares now trade consistently lower than their offer price, meaning taxpayers stand to lose as much as $25 billion on the government’s remaining 26.5-percent stake in GM, according to Treasury estimates.
In moving to get GM through bankruptcy, the task force and its bosses at Treasury effectively shafted 22,000 salaried retirees of the former Delphi Corp., the long-time GM parts supplier the automaker spun off in 1999. Despite an 85 percent funding level in its pension fund, Treasury urged the Pension Benefit Guaranty Corp. to seize the Delphi pension plan.
The net effect: Many retirees saw their annual payouts cut by as much as two thirds, even as union members were “topped up” with taxpayer dollars from the Troubled Asset Relief Program; their former colleagues at GM saw comparatively minor cuts to their pensions; and key members of the auto task force still won’t tell congressional investigators who made the call to treat Delphi’s salaried retirees differently than everyone else.
In moving to get both GM and Chrysler through bankruptcy, the task force essentially ordered the automakers to cut thousands of independent dealers from their distribution networks, irrespective of the dealers’ profitability, customer service performance and even location.
The bottom line: The president’s call to rescue Detroit from itself — a call his predecessor George W. Bush made first and said he would do again — succeeded more than his Republican rival, Gov. Mitt Romney, and his proxies may be willing to admit. But it wasn’t always pretty, and that success came at a price, roughly $85 billion, that some continue to argue was not worth paying.
In theory, maybe. In the context of presidential politics, not a chance. No sitting president, Republican or Democrat, could risk the economic cataclysm in the industrial Midwest of a collapse of the domestic automakers and much of their supply base. Too many jobs, too much wealth, too much political support and too many communities are at stake.
Romney even admitted as much in the days running up to Michigan primary last February, notwithstanding his November 2008 op-ed in the New York Times headlined “Let Detroit go Bankrupt.” He conceded, in questioning by The Detroit News, that he would not as president allow the Detroit automakers and their suppliers to collapse amid the kind of global financial meltdown the nation faced in late 2008 and early ’09.
He’s right, as Obama was in the early days of his presidency. Nearly four years on, the prescriptions issued by Obama and Romney, each in its own way, occurred: both companies have new management and reconstituted boards of directors; both companies have more competitive labor agreements and stronger balance sheets; both companies are making in-roads in the small car segment where Detroit has long struggled.
GM and Chrysler are stronger, better led and more likely to survive because each possessed assets worth saving — and because their leaders and the tens of thousands who work for them did the hard work to finish the job.