Opinion: With rivals in Michigan, Obama defends his Detroit bailout
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All four Republican presidential candidates opposed the federal bailouts of General Motors and Chrysler, and none of them shrank from that position as they campaigned for autoworker votes in Michigan. In fact, Mitt Romney reiterated the position he took in a 2008 op-ed that Washington should have ‘let Detroit go bankrupt.’
On Tuesday, as Michigan voters went to cast ballots in their GOP primary, President Obama went to a conference for auto union activists to defend those bailouts. Naturally, he portrayed them as an unqualified success, with 200,000 new jobs created by revived companies producing better cars.
The direct cost to the U.S. Treasury is measurable, so at some point we’ll know how many billions of dollars it cost to shepherd GM and Chrysler through bankruptcy. But we’ll never know what costs the bailouts avoided. Obama’s argument hinges on the hypothesis that those costs would have been very, very high. But it’s just a belief -- one that we’ll never be able to prove or disprove.
Here’s an excerpt from Obama’s speech:
A few years ago, nearly 1 in 5 autoworkers were handed a pink slip -- 1 in 5. Four hundred thousand jobs across this industry vanished the year before I took office. And then as the financial crisis hit with its full force, America faced a hard and once unimaginable reality, that two of the Big 3 automakers -- GM and Chrysler -- were on the brink of liquidation.
The heartbeat of American manufacturing was flat-lining, and we had to make a choice. With the economy in complete free fall, there were no private investors or companies out there willing to take a chance on the auto industry. Nobody was lining up to give you guys loans. Anyone in the financial sector can tell you that....
Think about what that choice would have meant for this country, if we had turned our backs on you, if America had thrown in the towel, if GM and Chrysler had gone under. The suppliers, the distributors that get their business from these companies, they would have died off. Then even Ford could have gone down as well. Production shut down. Factories shuttered. Once-proud companies chopped up and sold off for scraps. And all of you, the men and women who built these companies with your own hands, would have been hung out to dry.
More than 1 million Americans across the country would have lost their jobs in the middle of the worst economic crisis since the Great Depression. In communities across the Midwest, it would have been another Great Depression. And then think about all the people who depend on you. Not just your families but the schoolteachers, the small-business owners, the server in the diner who knows your order, the bartender who’s waiting for you to get off.
GOP candidates would dispute at least two fundamental points that Obama made. First is the assertion that no private lender would provide the loans needed to keep GM and Chrysler going while they were being reorganized in bankruptcy. Romney argued in 2008 that the companies could reorganize without the government’s help, and that position has been echoed by many other Republicans ever since.
Given what was happening at the time, their argument seems more than a little quixotic. Even healthy companies were having trouble getting loans, and weak ones were being cut off routinely from new funding sources. If they couldn’t generate a cash flow in bankruptcy, they went into liquidation.
The second point in dispute is that allowing GM and Chrysler to liquidate would have been devastating to the auto industry as a whole, causing a vicious cycle of shutdowns among parts suppliers and other carmakers. Some conservatives contend that if the two giants had failed, their most productive units, technologies and workers would have been snapped up by healthy manufacturers and put to more efficient use. That would have been better in the long run for U.S. manufacturing than keeping those assets within large, weak companies.
On both of these issues, though, the real question is how much risk the president should have been willing to take. Given how much trouble the economy was in and how many jobs were at stake in the auto industry, doing nothing for GM and Chrysler would have been an epic roll of the dice. Would private lenders provide the loans needed to keep the two companies, which had burned through all their cash and were losing money daily, going while they were crafting a plan to shed debt and slash labor costs? And if not, would the rest of the industry be able to withstand the impact of one or both of those companies’ factories shutting down and their inventories being sold off at deep discounts?
Yes, bailing out the automakers was risky for taxpayers, who probably won’t recover all of the billions of dollars they invested in the companies, and for Obama, who has to defend the rescue (and in particular, the seemingly favorable treatment that union creditors received in the process). Those risks pale in comparison, though, to the worst-case scenario that Obama faced in early 2009.
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COMMENTARY AND ANALYSIS: Presidential Election 2012
-- Jon Healey
