Bloomberg News

Obama Gets Credit for Jobs in Michigan Where Voters Disapprove

September 12, 2011

Sept. 12 (Bloomberg) -- Wes Smith probably would have lost his family-owned company if it weren’t for one of President Barack Obama’s signature economic policies: the $82 billion bailout of General Motors Co. and Chrysler Group LLC.

“I could be out of business,” Smith said. “Do I think about that often? Absolutely.”

Instead, E&E Manufacturing Co., the Plymouth, Mich., auto- parts maker Smith’s father-in-law founded in 1962, is rebounding from the depths of the financial crisis. Annual sales of about $75 million are up about 50 percent from their nadir. The company has added about 70 jobs since employment bottomed at 280, down from a pre-crisis high of 480.

E&E’s resurgence is part of a broader auto-industry comeback that analysts say vindicates the government’s activism in financing and arranging the 2009 GM and Chrysler bankruptcies.

While Republicans assailed the intervention as evidence of Obama’s addiction to state-centric solutions, the industry has added almost 133,000 U.S. jobs since its 2009 low point, according to the Bureau of Labor Statistics. And the U.S. government has recovered all but $1.3 billion of the $12.5 billion it spent to prop up Auburn Hills, Michigan-based Chrysler, now controlled by Italy’s Fiat SpA, and almost half of the $49.5 billion devoted to GM in Detroit.

“It was one of the better policy responses to the financial panic and recession,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. The auto industry “is one of the more powerful sources of growth in the recovery.”

Political Dividends

One thing the industry’s Lazarus-like revival hasn’t done, however, is pay political dividends for Obama.

“I have no faith in this administration,” said Smith, 55, criticizing what he said is the president’s failure to encourage corporate investment in the U.S.

The sour grapes aren’t limited to Republicans such as Smith. In the latest EPIC-MRA poll of Michigan voters, 65 percent gave Obama a negative job-performance rating -- worse than the 50 percent disapproval mark in the latest national Gallup poll. Even a majority of traditionally Democratic union households in Michigan gave Obama a thumbs-down.

James Mead, 46, hired as a welder at E&E after six months of unemployment, shrugs at the president’s role in saving companies like his new employer.

“I think it’s something the government had to do,” he said in an interview. “If they didn’t and the auto industry collapsed, we would have had a depression.”

Voted Democratic

Michigan voters in EPIC-MRA’s mock 2012 ballot preferred former Massachusetts Governor Mitt Romney -- who opposed the bailout -- over Obama 45 percent to 43 percent. The president won Michigan’s 17 electoral votes in 2008, capturing more than 57 percent of the popular vote. The state has voted Democratic in every presidential election since 1992.

“It shouldn’t be a fight at all,” said Bob King, president of the United Auto Workers union. Obama “should carry it overwhelmingly.”

There’s not much mystery about the reason for Obama’s troubles here. After falling in April to 10.2 percent from a 2009 peak of 14.1 percent, the state’s jobless rate has risen for three consecutive months to 10.9 percent -- well above 9.1 percent nationally.

“Michigan’s economy is worse than the nation’s,” said Bernie Porn, president of EPIC-MRA, the Lansing, Michigan-based opinion-research company. “The unemployment rate is higher and people are more depressed.”

Rallying Cry

Arguing that things could have been worse -- as the administration sometimes has -- isn’t much of a rallying cry. It may, however, be true.

“Without the government stepping in, first the Bush administration and then the Obama administration, we would have seen the liquidation of both Chrysler and probably GM,” said David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Michigan. “That would have taken the whole industry down. We would have seen a disaster in terms of the job impact.”

Michigan has added 110,800 jobs since nonfarm employment bottomed in 2009. Obama took credit for the auto-industry turnaround in a Labor Day appearance in the Motor City, saying “I’ve seen Detroit prove the cynics and the naysayers wrong.”

The visit was his second Michigan stop in a month; he also highlighted signs of growth during an Aug. 11 tour of a Johnson Controls Inc. factory in Holland, Mich., that produces lithium- ion batteries for hybrid and electric vehicles. The Milwaukee- based company says its planned $460 million investment in green technology will create 700 new jobs, preserve an additional 400 and spark 1,000 construction hirings.

Auto Rescue

Despite Michigan’s green-economy potential, there are 749,000 fewer people working in the state today than in April 2000. That long-term trend dwarfs the auto rescue’s political salience.

“Even here, Obama doesn’t get much credit for it,” said Dan Luria, director of research for the Michigan Manufacturing Technology Center in Plymouth. “Once something occurs, people tend to believe it would have happened anyway” and “have trouble believing government really did something that had a big impact on their lives.”

Another reason popular acclaim has been somewhat muted: The auto-industry revival has done more for investors than workers. Since July 13, 2009, the first trading day after GM exited bankruptcy, the Bloomberg World Auto Parts & Equipment Index has gained 57 percent vs. the Standard & Poor’s 500 stock-index gain of 28 percent.

Crisis Low

An investor who bought shares of American Axle & Manufacturing Holdings Inc. at its March 2009 crisis low of 29 cents -- down 99 percent from the 2007 peak -- would enjoy a return of more than 2,500 percent, based on the closing price of $7.74 on Sept. 9.

American Axle responded to its near-death experience by taking a cleaver to fixed costs, closing plants and restructuring to break even if annual U.S. auto sales were 10 million -- down from around 14 million before the crisis.

While the company has been profitable for eight consecutive quarters, its U.S. workforce shrank to about 2,800 at the end of 2010 from 6,200 at the end of 2007 as it focuses on markets such as Brazil, Thailand, India and China.

The Detroit-based company, which reported $2.3 billion in annual revenue last year, says it expects to reach the $3 billion mark in 2013.

“To support that, we will have to hire,” said Christopher Son, director of investor relations. “Some will be in the U.S.; a lot will be in the foreign markets.”

Jobs at Risk

In late 2008, faced with estimates that as many as 3 million U.S. jobs could be at risk, the Bush administration extended more than $17 billion in loans from the Troubled Assets Relief Program to GM and Chrysler. Dearborn, Michigan-based Ford Motor Co. didn’t need government financing, thanks to a 2006 refinancing of its debt.

Officials said the failure of either company could start a chain reaction that would topple dozens of suppliers. Those failures, in turn, would boomerang onto otherwise healthy operations, including Ford and the U.S. plants of foreign makers such as Japan’s Toyota Motor Corp. and Honda Motor Co.

At E&E, Smith went into survival mode. He stopped taking a salary, laid off factory workers and cut the pay of his managers. The entire domestic auto industry retreated into a similar state of hibernation, with factories operating at barely one-third of capacity, according to Federal Reserve data.

‘It Was Terrible’

“It was terrible,” Smith said. “You didn’t know if you were going to make it or not. We’d never had a losing year, but we lost big in ’08 and ’09.”

In 2009, the Obama administration provided additional financing for the two car companies, as well as their financing arms. An auto-industry task force also shepherded the companies through accelerated bankruptcies. The process allowed them to shed excess facilities, workers and dealers, emerging in mid-2009 in better shape to battle global competitors.

A key objective of the rescue was preserving the network of machine shops and parts makers that serve all the manufacturers. In a February 13, 2009, submission to the Treasury Department, an industry association warned that it was “on the cusp of a cascading economic failure.” The Obama administration responded by establishing a $5 billion Supplier Support Program, which acted as a financial safety net.

By December 2009, U.S. car and truck sales were running at an annual pace of 11.1 million, up from 9.3 million in February. In July of this year, auto companies operated at 64.5 percent of capacity, a near-doubling of the pace at the crisis low point, yet well below the 75.3 percent long-term average.

Rising Profits

GM -- with the U.S. Treasury still owning 32 percent of its shares -- reported second-quarter profits of $2.99 billion, its sixth consecutive profitable quarter. The automaker’s global workforce, which stood at 116,000 at the end of 2008, now tops 200,000, and its U.S. sales rose 18 percent in August compared with a 13 percent decline for Toyota, still battling tight supplies after Japan’s March earthquake.

In May, GM announced plans for a $2 billion investment in its U.S. factories that it said would “create or retain” about 4,000 jobs, according to spokeswoman Kimberly Carpenter.

Still, a healthier GM has seen its U.S. payroll shrink to 79,000 as of June 30 from 91,000 jobs at the end of 2008.

‘Making Profits’

“GM and Chrysler are making profits,” said Steven Rattner, who headed the auto task force and also has handled the personal and philanthropic finances of New York Mayor Michael R. Bloomberg, the majority owner of Bloomberg LP, the parent of Bloomberg News. “The bigger question is, the president saved these companies; whether we succeeded in saving the jobs remains to be seen.”

The answer may be found about 16 miles north of Detroit in Warren, Michigan, a center of auto and defense manufacturing for generations. Along Groesbeck Highway, a boulevard lined with machine shops and warehouses, “for sale or lease” signs compete with the occasional “help wanted” advertisement.

While Congressman Sander Levin, a Democrat, says he has no doubt the administration’s rescue saved his district from economic catastrophe, Obama will need to do more to retain Michigan’s allegiance next year.

“There needs to be two pieces: addressing the deficit and stimulating growth,” Levin said. “He needs to dramatically shift gears.”

In the past year, 768 workers have gone through a new retraining program at Macomb Community College designed for laid-off auto workers and military veterans. A total of 272 have been placed in jobs.

Bounced Around

Craig Fowlds, 53, hopes to join them. A veteran of GM’s Cadillac assembly line, he took a buyout during an earlier restructuring in the late 1980s. Since then, he’s bounced between jobs at other automakers, including Honda and Chrysler, sometimes earning as much as $34 an hour. When he eventually exhausted his unemployment benefits, his 2008 Chrysler Town and Country minivan was repossessed.

“It’s been a struggle to keep my head above water,” said, Fowlds, who is scheduled to graduate from the training program in October.

He says he doesn’t think the auto rescue has helped Michigan much. An Obama voter in 2008, he’ll wait to see whom the Republicans nominate before deciding whether to support the president’s re-election.

“I may not even vote at all,” he said. “I’m so frustrated.”

--Editors: Melinda Grenier, Gail DeGeorge

To contact the reporter on this story: David J. Lynch in Washington at dlynch27@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


Hollywood Goes YouTube
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus