Auto Bailout

Now, Obama 'Owns' General Motors


In firing the CEO of General Motors (GM) this week and suggesting bankruptcy may be the best course for that company and Chrysler, President Barack Obama demonstrated forcefully that the Administration will go only so far to rescue even the country's most important icons. But the move, which experts are comparing with a variety of similarly dramatic decisions by his predecessors, is fraught with political risk—and risk for his economic program generally.

Some commentators and bloggers are comparing Obama's actions on the car companies with President Ronald Reagan's 1981 dismissal of the country's air traffic controllers, and British Prime Minister Margaret Thatcher's 1984-85 showdown with her country's coal miners. In both cases, the moves proved pivotal in demonstrating their resolve, and boosted their political support. Others have cited showdowns by Presidents Harry Truman and John F. Kennedy with the U.S. steel industry. Truman shut down the industry in a case involving the Korean War (his decision was overturned by the Supreme Court), and JFK faced down U.S. Steel over a price increase.

It's too early to say how important Obama's ultimatum to the U.S. auto industry will prove. "This could be an important moment," says Lou Cannon, a preeminent Reagan scholar and the author of five books on the former President. But even if it is, the decision could turn out to have starkly different meanings. Obama could be "seen two years from now as the President who saved the American automobile industry, or…as the President who destroyed it," Cannon said by phone from his California home. "Think of the two characterizations."

"You Break It, You Own It"

Because of that uncertainty, Cannon thinks there may be a more apt analogy. It is then-Secretary of State Colin Powell's remonstration to President George W. Bush before his final decision to go to war in Iraq: "If you break it, you own it." "The President of the U.S. owns GM. He put himself in a position in which the success or failure of GM will be blamed on him," Cannon said.

There's another key difference between Obama last week and Reagan and Thatcher in the '80s: The conservative icons acted in the face of blatant opposition, and in the process changed the political equation by showing that government was not going to side with labor, says Richard Reeves, the author of biographies of both JFK and Reagan.

Obama, by contrast, is in a much more fluid situation. The true message of his move remains to be seen. Reeves compares Obama's strategy with that of President Franklin D. Roosevelt's. The economic downturns in the 1930s and now were bafflingly complex. FDR "had not mastered the declining economics of the country," he said. As for Obama, Reeves said, "I can't believe that, with the amount of time that's passed and the people involved, that they have dug so deep into these problems. There's no way that they know what they're doing. You couldn't know so many things in such a confusing time."

Taking a Bold Risk with His Authority

In both cases, the Presidents were "throwing everything against the wall and seeing what sticks," Reeves said. "I think Obama is saying, 'Someone has to be in charge,' and I think he's right. If he was just sitting back, he'd be toast. This country wants a sense that someone is in charge."

But they also want results, and that's where Obama's chutzpah on GM and Chrysler may come back to hurt him, well beyond his auto-industry policy. If the automakers dodge Obama's deadlines, perhaps by finding political cover with Congress, it could undermine his ability to take similarly bold stands on other issues.

"On the most obvious level, if you issue threats or you intimidate business, and in the end business just does what it wants, you lose some of your political capital," says Julian E. Zelizer, a professor of history and public affairs at Princeton University's Woodrow Wilson School of Public & International Affairs. "It will suggest the business community is not so frightened of Obama at a time he needs to be able to lean on them."

Jury Is Still Out

That happened to FDR, too. One of his signature early initiatives, the National Recovery Act, sought to impose voluntary production levels to bring the country out of the Depression. It flopped, even before the Supreme Court declared it unconstitutional, Zelizer says. "Sometimes a President can't use the power of persuasion to get business to act even in a time of major economic crisis," he said.

Not that the NRA's failure hurt FDR's legacy in the long run, of course. But the verdict is far from clear at this point for Obama's GM-Chrysler moment.

Business Exchange related topics:
General Motors
Chrysler
U.S. Economic History

LeVine is a correspondent in BusinessWeek's Washington bureau. Francis is a correspondent in BusinessWeek's Washington bureau.

LeVine is a correspondent in BusinessWeek's Washington bureau.
Francis is a correspondent in BusinessWeek's Washington bureau.

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