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Obama to Detroit: Government won't walk away


In President Obama’s address to Congress last night, he said he’s behind the auto industry and wants to save it. At least, that’s my interpretation. The new President said that government won’t walk away from the industry, even though saving Detroit’s Big Three will be costly and tough to pull off. Read another way, you could say the Administration is in for a dime and in for a dollar.

Here’s what Obama said: “As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not, and will not, protect them from their own bad practices. But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it. Scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it. None of this will come without cost, nor will it be easy. But this is America. We don’t do what’s easy. We do what is necessary to move this country forward.”

The question taxpayers want to know is how much cost. The Treasury Department is already in for $13.4 billion in loans to GM. That could grow to as much as $30 billion if the economy contrinues to swoon and the Administration’s Auto Task Force wants to give GM the loans it is requesting. Chrysler wants up to $9 billion. And parts makers want some help, too. Depending on how bad things get, the industry could easily end up requesting more money. And plenty needs to go right to pay it off.

It’s important to note that Obama said that, “Millions of jobs depend on it. Scores of communities depend on it.” In other words, he doesn’t want to put a few million more jobs risk and see scores of towns go under. And he doesn’t want Big Labor to suffer on his watch.

That’s not a bad thing. The government’s mission in this economy is to try to keep jobs from evaporating until financial markets and housing recover. The question is how will the government force Detroit, its union and bondholders to do what’s needed to create this “re-tooled, re-imagined auto industry that can compete and win.” Much of that is being negotiated now. The government will have to use a very strong hand and be willing to use bankruptcy as a hammer to get all sides to restructure the balance sheets and cost structure of GM and Chrysler—and maybe Ford if the company burns through its cash. “We don’t do what’s easy.” Let’s see how tough he’s willing to get.


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