Obama’s Auto Bailout Lies

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In what has become part of his general re-election strategy, president Barack Obama is touting the government bailout of automakers GM and Chrysler as a great success. “The American auto industry was on the verge of collapse. And some politicians were willing to let it just die. We said no,” Obama told college students last week in Ann Arbor, Michigan. “We believe in the workers of this state.” Yet much like other pronouncements of “fact” that come from this president, the devil is in the details, many of which don’t remotely square with the reality. Much like the banks, the auto industry was “too big to fail,” and it was “saved” in exactly the same fashion: with a multi-billion dollar bailout, courtesy of the American taxpayer.

Let’s begin with the president’s central assertion, i.e. the American auto industry was on the verge of collapse. While there is no question that GM and Chrysler were in trouble, several other U.S. auto producers, such as Ford, Honda and Toyota, were in no danger of going under. The reason GM and Chrysler were in trouble was largely due to their own shortcomings, namely mismanagement, and labor costs that were out of control. Moreover as this article from 2005 reveals, GM was in trouble long before the current financial crisis exacerbated its problems. From 2000 to 2005, GM had already lost 74 percent of its market share, was saddled with more than $1600 per vehicle in “legacy costs” (read: “union pensions and health benefits”) and, because of its union agreements, the automaker couldn’t close plants or lay off workers without paying a stiff penalty, or run plants at less than 80% capacity–whether they made money or not.

Thus for GM and Chrysler as well, it wasn’t a matter of if, but when such profligacy would be their eventual undoing. As the financial crisis hit, both automakers were on the verge of collapse. Yet that reality didn’t sway Congress, which, at that time, was insufficiently attuned to the “never let a crisis go to waste” mentality that would eventually lead to multi-billion dollar bailouts of the banking sector and insurance giant AIG. Congress voted against emergency loans in late 2008.

At that point George W. Bush made the kind of end run around Congress that president Obama has raised to an art form: after being informed by Treasury Secretary Hank Paulson that he (Paulson) had no authority to use funds from the Troubled Assets Relief Program (TARP) for an auto bailout, the former president authorized $17.4 billion in loans with the proviso that both companies develop restructuring plans after Obama became president. Mr. Obama, as is his wont, then “doubled down” on his determination to use taxpayers funds to save both companies.

No doubt he was aided by a document produced by the Center for Automotive Research (CAR). Their worst case scenario, a 100 percent cessation of operations by the “Detroit Three” (Ford, which never took bailout money, was included in the scenario) “would be a loss of nearly 3.0 million jobs in the U.S. economy–comprised of 239,341 jobs at the Detroit Three, 973,969 indirect/supplier jobs and over 1.7 million spin-off (expenditure-induced) jobs.” Yet as it is pointed out here, “the report gave no consideration to the more realistic scenario that one or two of the Detroit automakers might turn to Chapter 11 reorganization.”

Why not Chapter 11 bankruptcy? Politics. The same unions that threw their support behind Barack Obama’s presidency wanted quid pro quo. A Chapter 11 bankruptcy proceeding was viewed as a lose-lose proposition for the United Auto Workers Union (UAW), whose contracts would have undoubtedly been re-worked to include major concessions, and a pro-union president eager to portray himself as a savior of a major American industry. That the administration made a complete mockery of bankruptcy laws in the process was of little consequence.

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  • http://www.lysanderspoonerlawschool.org Kenneth Olsen

    Obama's grand theft of bondholder assets is an impeachable offense.

    • Spider

      Obama basically stole GM from it's rightful owners (the bondholders and stock owners) First he propped up the company with taxpayer money and then handed the company over to his buddies at the UAW . After he is run out of office he should get federal prison..

      • http://www.mittromneyjobcreation.com/ James

        That's not really accurate. The UAW ended up with the financial burden of healthcare costs. This was one of the supposed crippling costs being taken on by GM.
        http://www.mittromneyjobcreation.com/auto-industr

  • http://apollospaeks.blogtownhall.com/ ApolloSpeaks

    Obama no more saved the US auto industry from catastrophic collapse than he saved the US economy from a second great depression. Lie as he may about his historic accomplishments the wannabe savior of the world won't be able to save his job on election day.

  • Amused

    Thanks Ahert , you have finally stated a truth GW , initiasted the bailouts , and yiou call it what ? "An end run around Congress " ? It doesn't matter WHEN the automakers were in trouble , Bush and Republicans initiated the bailout loans . ALL of them . LOL…and that after causing the economy crash which was started and in progress ;ong before Obama took office .
    Are we going to bite Bush now , for the sake of attacking Obama ? Be carefull there Ahert , you're liable to kill your scapegoat .
    As for YOU AppolloSpeaks , you're just as much the phony as little Arnold . But you people can't have it both ways – discrediting Obama for the bailouts that Bush initiated [with the help of fellow RepoCons ] then blaming him for the very cause of the bailouts . Talk about LIARS . Get your head screwed on right .

    • Mike

      Amused, the Republicans in congress helped Bush with the bailouts??? Explain to all of us how they did that when Bush was sitting over a democratic Senate and a Democratic House of Representatives……we're waiting.

  • Ken

    Ah, yes, the anti-Semite lectures about the truth. Very laughable!!

  • davarino

    I wont buy GM or Chrylser. Maybe the government can buy all their cars. Why would a manufacturer concede to not close any plants and not run less than 80% capacity. Thats just like what happened to Boeing, wasnt allowed to open a plant in SC. What has this nation come to? No more freedom, unless your union

  • sedoanman

    "Why is the president touting his lawless union payoff as one of his administration's 'success' stories?"

    C'mon. Do you expect him to go into the campaign with nothing to show for the last 3+ years? Therefore, he HAS to spin SOME of his efforts into success.

  • BLJ

    Simple: He is lying sack of feces. The auto bailout and stimulus program was the biggest robbery of the taxpayer in history.

  • lisa

    Is there a perfect politician no; but this president has done much for american quit being haters

    • BLJ

      Put the pipe down.

  • tanstaafl

    GM should have filed for Chapter 11 years ago.

  • Alex Kovnat

    The reason why GM and Chrysler were nearly if not actually bankrupt and that Ford was bleeding cash, was at least partially due to government demands for more and more fuel economy and ever more stringent safety demands as well. And unfortunately the demands for more and more doodads on other people's cars, just keep on coming. For example, you would think it would be enough that cars are required to meet a 50+ MPG corporate average fuel economy demand. But now, we are hearing proposals that cars also be required to be able to run on gasoline, methanol, ethanol or any combination of these. With all these constant demands for more and more doodads on other people's cars, is it any wonder when automakers have to be "bailed out?"

    • http://www.obamaftw.com/blog/ James

      "at least partially due to government demands for more and more fuel economy and ever more stringent safety demands as well"

      So shouldn't the Japanese auto makers have also found themselves in the same boat? After all, their government has even stricter standards.
      http://www.obamaftw.com/blog/auto-bailout/obama-r

  • Auto Guy

    Actually, YOU (and other who buy into the "devaluing dollar conspiracy") need to understand how nominal vs real wages work. Yes, the dollar becomes devalues and 'more dollars' are circulated in the economy, but our wages all go up. The problem is that the gains in GDP have all gone to the top 1%. The dollar is working just fine for them, because all of our hard work is going disproportionately to them, and our real wages are actually falling over time. Thank Reagan and his puppet masters (now the puppet masters of Fox News and the Tea Party)..