U.S. automakers would endorse four more years with profits like those this week. A second term for President Barack Obama, who made saving General Motors Co. (GM:US) a campaign pillar, hinges on whether voters give him the credit.
Four years ago, GM and Chrysler Group LLC’s soon-to-be bankrupt predecessors and Ford Motor Co. (F:US), which ultimately survived without a bailout, were seeking U.S. government aid to pay their bills. This week, the strongest domestic auto market since 2007 helped GM and Ford beat Wall Street profit estimates and Chrysler’s third-quarter profit jump 80 percent.
President George W. Bush, a Republican, gave GM and Chrysler emergency loans in late 2008 to keep them alive long enough for Obama, a Democrat, to go on to craft the $80 billion rescue plan that included the 2009 firing of GM Chief Executive Office Rick Wagoner and the managed bankruptcy of both carmakers. At the time, 54 percent of Americans said the bailout was bad for the economy, according to a Pew Research poll.
“It had to be fast; it was ugly, and they certainly didn’t play by the rules of who are the preferred creditors,” Maryann Keller, the principal of a self-named consulting firm in Stamford, Connecticut, said of the Obama administration’s auto bailout. “On the other hand, they saved the industry.”
Contrast that to this year, when Pew polling determined 56 percent of Americans considered the bailout of Chrysler and GM good for the U.S. economy. Obama’s running mate, Vice President Joe Biden, frequently quips from the campaign trail that his ticket deserves re-election because “General Motors is alive” and Osama Bin Laden is dead.
GM’s and Ford’s North American operations earned a combined $11.95 billion in pretax profit this year through September, the companies said this week, pushing their shares to the highest since April. Fiat SpA-controlled Chrysler, which generates almost all of its revenue in North America, reported $4.1 billion in modified earnings before interest, taxes, depreciation and amortization.
Mitt Romney, who has criticized Obama’s auto rescue, is trailing in Ohio, a state vital to his chances to win the White House, where the auto industry accounts for 4 percent of the workforce. Polls show the Republican also trails in Michigan. The two states together have about 65 percent of GM and Chrysler factories.
“If I was an auto worker, I would vote for Obama, no question,” James Hoffman, a district president at Key Bank in Toledo, Ohio, who supports Romney, said in an interview with Bloomberg Television. “I don’t necessarily agree, but it did preserve jobs in the industry and we are now seeing the rebound, so keeping core industry like auto is good national policy, so he should get credit for that.”
U.S. light-vehicle sales have risen 14 percent this year through October, and Ford said they are on pace for about 14.5 million this year, the best since 2007, the year before Obama was elected. Autos contributed 18 percent of the 2.2 percent average rate of growth for gross domestic product in the recovery that began in the third quarter of 2009 to the second quarter of 2012, according to data from the Commerce Department.
Domestic and foreign automakers have been on a binge of hiring that has led to third shifts in at least eight states. North American auto plants’ capacity utilization rose to 93.5 percent in the last quarter, the most since at least 2005, according to WardsAuto in Southfield, Michigan, which tracks industry performance.
Unemployment, which peaked at 10.6 percent in Ohio in January 2010, fell to 7 percent in September 2012. In Michigan, joblessness fell from a 14.2 percent high in August 2009 to 9.3 percent in September. Auto jobs have increased about 15 percent in Ohio and 33 percent in Michigan from July 2009, when GM was emerging from bankruptcy, through September, according to the U.S. Bureau of Labor Statistics. Unemployment is now lower in Michigan and Ohio than when Obama took office.
“They went through hell, through an organized-by-the-federal-government bankruptcy, to get more efficient, to deal with too much debt and more efficient also in terms of operating costs,” Gerald Greenwald, a former Chrysler vice chairman and co-founder of private-equity firm Greenbriar Equity Group LLC, said in an Oct. 31 interview.
The rescue came at a cost. GM bondholders got pennies on the dollar and Chrysler lenders had to accept a reduced payout. New union workers at GM, Chrysler and Ford agreed to paychecks that are about half the size of workers hired before 2007 and forgo traditional pensions and retiree health care.
Unemployment in Michigan and Ohio remains higher than before the recession and the two states still have about a quarter fewer auto workers, according to BLS data. Only about a third of the factories closed as part of the auto restructuring have been repurposed, and most of those employ far fewer workers, according to a report from the Center for Automotive Research in Ann Arbor, Michigan.
“Obama claims to have bailed out the auto industry,” said Harvey Golub, the former chairman of American International Group Inc. (AIG:US) and chairman of Miller Buckfire & Co., who has been a critic of the bankruptcy plan Obama approved for the automakers.
“He only helped GM and Chrysler, who had about one-third of the U.S. auto industry. His focus was not even on those companies, but on their unions,” he said.
Romney has battled the perception, fueled by a 2008 New York Times op-ed column he wrote, that he wouldn’t have rescued the auto industry. Romney has said he favored a managed bankruptcy with government loan guarantees instead of direct loans.
“There’s no doubt that the automotive industry is better off, but it might have thrived even more through a traditional bankruptcy because that’s how capitalism works,” said Michael Larson, vice president of operations for a food packaging machinery manufacturer in Troy, Ohio, who voted for Romney yesterday.
“I have empathy for the auto workers and obviously it did assist them, but I don’t like that they used taxpayer money,” he said.
Romney has been attacking Obama’s auto rescue over the last week in Ohio, which no Republican has ever lost while winning the presidency.
Romney’s TV ad with a theme that auto jobs were going overseas debuted last weekend and has appeared more than a dozen times each in the Toledo and Youngstown markets, according to Kantar Media’s CMAG, a New York-based ad tracker.
The 30-second spot shows cars being crushed as a narrator says Obama “sold Chrysler to Italians who are going to build Jeeps in China. Mitt Romney will fight for every American job.” Fiat is based in Turin, Italy.
The Washington Post and PolitiFact.com were among media outlets that said the commercial was misleading. GM and Chrysler both responded with statements that they are adding jobs in both the U.S. and China and not shifting work overseas.
“Without President Obama’s help, Chrysler and GM would have stopped making cars, closed their doors, laid off thousands of workers, halted payments to suppliers, and liquidated,” Steven Rattner, who headed up Obama’s original auto task force, said in an Oct. 31 blog post on MSNBC.com.
GM and Ally Financial Inc. (ALLY:US), the automaker’s former lending unit, combined still owed U.S. taxpayers about $41.7 billion at the end of September, including about $27 billion from GM, represented by stakes the U.S. still holds in the two companies, according to a report from the Special Inspector General for the Troubled Asset Relief Program.
The U.S. government owns 32 percent (GM:US) of GM and the Detroit automaker has banned political visits to its factories this campaign season. Chrysler hasn’t had a candidate visit its assembly plants since June 2011 when Obama was at a Toledo factory to mark Chrysler paying back its government loans.
Chrysler repaid its loans in May 2011 and, the following month, the Treasury Department sold its last remaining equity interest in the company. The government has said Chrysler returned more than $11.2 billion of the $12.5 billion committed to the company and that it’s unlikely to fully recover the remaining $1.3 billion.
GM, which employs about 14,000 fewer workers now than it did before slipping into bankruptcy, has brought back 18,600 laid off workers and invested $7.9 billion in the U.S., including adding production of a new version of a small sedan in Michigan that had previously been produced in South Korea, Greg Martin, a GM spokesman, said this week.
“You can fool some of the people some of the time, but you can’t fool our people when it comes to cars,” Senator Carl Levin, a Democrat from Michigan, said on a conference call yesterday with reporters. “I can’t imagine a worse political strategy in the final days of the campaign than to try to mislead voters in Michigan, Ohio or any state that’s strongly into manufacturing about the industry that we know so well.”
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