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Opinion: Obama Deserves Cheers As He Tours Detroit Auto Plants

Ongoing Big Three upturn shows bailout was worth it.

by on Jul.30, 2010

Recent events should make it easier for President Obama to promote the bailout of GM and Chrysler.

Whichever side of today’s highly partisan spectrum you fall on, there’s little doubt President Barack Obama’s visit to Detroit is clearly political in nature.  But why shouldn’t it be?  In an era when the merits of almost everything the government does is debated, ad nauseum, the current occupant of the Oval Office has reason to come crowing as he tours a pair of domestic auto plants.

Despite the strong criticism leveled against the bailout of General Motors and Chrysler, last year, there’s growing evidence the tens of billions of dollars invested into the automakers was worth the risk – and that we taxpayers actually may get much, perhaps all, of our money back when the two makers go public once again.

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At a time when critics of the White House weep over the inability to generate jobs – while resisting the need to prop up those out of work – one can only imagine just how deep a hole the American economy might have toppled into had GM and Chrysler been written off.  By most accounts, 1 million jobs were directly at risk, never mind the multiplier effect their collapse would have had on the broader economy.

To be fair, the Bush Administration came up with the first small loans needed to carry GM and Chrysler.  Meanwhile, there were Democrats as well as Republicans who blocked a proposed Congressional bailout.  When that failed, the new Obama Administration took the heat, however, tapping the same TARP funds initially approved to rescue the banking industry – the folks largely responsible for the economic mess in the first place, and the ones who’ve done the least to actually help the country recover.

While critics like Rush Limbaugh deride what they call “Government Motors,” the reality is significantly different – and in sharp contrast to countries like England or France that previously nationalized their auto industries.  I’m not naïve enough to believe, on face value, GM CEO Ed Whitacre’s claim that it’s been an entirely hands-off relationship.  But that’s not necessarily a bad thing.  Indeed, Whitacre wouldn’t be here if Washington’s auto czar hadn’t booted former GM Chairman Rick Wagoner in March 2009.

If anything, the government’s game plan, requiring a fast, no-compromise restructuring, actually turned GM – and Chrysler – into better-managed private companies than they had been in decades.  Wagoner was just the latest in a procession of managers overseeing a slow spiral of failure because they couldn’t or wouldn’t order the rapid changes necessary.

The GM that emerged from Chapter 11, on July 10, 2009 was leaner, more focused and very much more driven.  It has accomplished more in 13 months than in the 31 years I have personally spent covering the auto industry.

As one of TheDetroitBureau.com’s readers argued, in a recent comment, the cost was high.  Investors and lenders lost tens of billions of dollars.  Factories were shuttered across the country, and many thousands of jobs were lost.  In terms of employment, GM’s payroll is barely a tenth as large as it was in the late 1970s.

But what is the counterpoint?  Unless one believes the country would have been better off losing all the jobs GM had – and the nearly 1 million more it generates among suppliers – how can one honestly argue that its demise would have been an improvement?

Actually, some tried, New York Times columnist Thomas Friedman, for one, contending that the nation –and its motoring public — would have been better served to let Toyota take GM’s place.  Really?  Is that what we can conclude after watching the crisis that has enveloped a Japanese giant that now appears much like the old GM – so focused on sales, share and profits that it was willing to put the public at risk?

There’s no question it would have been better for everyone if GM and Chrysler could have skipped the bailout, as their cross-town rival Ford did.  The auto industry has seen many turnarounds, over the decades, but few match the ongoing success in Dearborn.  Like its rivals, Ford responded to a near-death experience by taking steps long considered impossible in the Motor City.  And it luckily(?) wisely(?) lined up the credit it would need before the debt markets dried up.

Ford is leading the way on a number of fronts, its quality now on a par with its best rivals and, significantly, a far sight better than Toyota’s now.  Ford is being rewarded by a number of consumers who are rediscovering domestic cars – but who, in many cases, can’t support companies on the federal till.  That’s one reason GM’s Whitacre seems willing to move so quickly on the IPO.

It’s hard to argue against those who won’t buy from Government Motors.  But when it comes to measuring the value of the bailout, we should be looking at hard numbers – and they are all moving in the right direction.

True to its word, GM has trimmed back to a level where it can be profitable in a dismal automotive market, one that only looks a little brighter by comparison to the disastrous 2009.  Consider that, half a decade ago, in the industry’s best years, GM was bleeding billions.

No, its quality isn’t up to Ford’s, but it’s getting there, according to outsider arbiters like J.D. Power and Associates.  And for the first time in decades, GM is turning out products that truly stand up on their own merits, like the Chevy Equinox, of which there’s barely a 17-day dealer supply – the sort of number once associated with the hottest Toyotas.

There are more question marks surrounding Chrysler, but if CEO Sergio Marchionne’s recent pronouncements prove accurate, the smallest of the domestics is also moving in the right direction.  Certainly, it’s a good sign that the maker is adding another 900 jobs at the Chrysler plant Obama visits today.

So, Mr. President, please enjoy your visit to Motown.  Smile broadly as you pose with the Chevy Volt.  There are plenty of reasons why critics might justifiably challenge your handling of the country and its economy, but when it comes to saving the domestic car business, you deserve nothing but kudos, in this publisher’s opinion.

And, dear readers, we’d like to hear yours.

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5 Responses to “Opinion: Obama Deserves Cheers As He Tours Detroit Auto Plants”

  1. Michael Rose says:

    Couldn’t agree more.

  2. Something that’s been lost in the year since the C11 of GM and Chrysler, is just how close to escaping bankruptcy Chrysler was. If not for a few bondholders — many of whom bought their stakes for pennies on the dollar hoping for a quick score — Chrysler could have avoided the stigma of bankruptcy, like Ford did. Where might they be now, a year after the merger with Fiat? I say somewhere between where they are now and the current level of success now enjoyed by their neighbors in Dearborn.

    • tdb says:

      Good point, Richard, though I am not entirely convinced. Frankly, I think that with the tight credit markets they might still have run out of cash, perhaps even at a later point when a bailout would have become politically untenable. Would Fiat have gone along without the money? And there are other uncertainties.
      Meanwhile, the simple lack of good product during the transition still leaves me wondering … and doubting … Chrysler could have pulled off what Ford did. They didn’t have the pipeline, the quality, the reputation, the volumes, the access to cash, etc. I think this was the only choice.
      Paul A. Eisenstein
      Publisher, TheDetroitBureau.com

  3. Paul — the most telling part of your report, and one with which I wholeheartedly agree from a autojourno perspective was,

    The GM that emerged from Chapter 11, on July 10, 2009 was leaner. . . ,accomplished more in 13 months than in the 31 years I have personally spent covering the auto industry.”

    If facing death finally got the lethargy shaken loose then the scary blood-letting was long overdue. I love my Corvette C6, but curse the fee cheesy, cheap interior bits that have no place in world-class sports car and know the quality could easily and cost effectively improved. Of course, the aftermarket would cry a river over a diminished market . . .

  4. Jack Harned says:

    Well said! Whatever one believes in principal, the practical result is a GM with prospects for success that would have taken more time and pain to achieve without the bankruptcy…if it could have been done at all. End result will be good for the country, the industry, and the region…if the new management does the job right.