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Did Obama Save Detroit?


The President makes the case that the $59 billion bailout saved the industry. Republicans and many voters say the rescue was misguided

President Barack Obama has been touring auto plants, visiting General Motors and Chrysler on July 30, a little more than a year after they emerged from bankruptcy; he is set to visit a Ford (F) plant on Aug. 5. The President made the case that his Administration's $59 billion bailout and the forced restructuring of the companies helped save autoworkers' jobs and the U.S. manufacturing base. While Ford did not take federal funds, it has acknowledged that the rescue indirectly helped it. Republicans and many voters say the bailout was misguided. Democrats and their labor union allies say the rescue was a success. Here are the White House's claims, and the arguments both ways.

THE ADMINISTRATION SAYS

There are growing signs of revival in the auto industry, as companies reopen plants, add shifts, and hire workers

Agree: Auto industry employment has increased by 55,000 in the year ended in June, the fastest rate since 1999. Nine of GM's 11 manufacturing and assembly plants skipped the traditional summer shutdown. The Chrysler plant that makes the 2011 Jeep Grand Cherokee also stayed open. One Chrysler and four GM facilities have added shifts.

Disagree: The new jobs help, but not much. Carmakers shed 334,000 jobs in the year before the bankruptcies. Total employment is now 573,500, vs. 921,700 in 1978. Some of the rescue funds are bolstering operations overseas, which doesn't add U.S. jobs. Chrysler is getting engineering know-how from Fiat, also limiting the number of new American white-collar jobs.

THE ADMINISTRATION SAYS

The companies are globally competitive again

Agree: Exports of cars and parts from January to May 2010 increased 57 percent from the same period in 2009. Sales to China were up 283 percent for a total of $1.85 billion.

Disagree: Even with that growth, U.S. auto and parts makers have a $43 billion trade deficit with the rest of the world. U.S. exports of passenger vehicles and parts rose 63 percent during the January to May period, while imports from other countries rose 66 percent, according to the American Automotive Policy Council.

THE ADMINISTRATION SAYS

The companies are returning to profitability

Agree: All three had profitable first quarters, and Ford had a profitable second quarter.

Disagree: Auto sales this year are on track to be 11.3 million, the lowest since 1982, with the exception of last year's 10.4 million. Annual sales averaged 16.8 million vehicles from 2000 through 2007. The big question is whether the companies can generate enough profit to improve cars and compete globally.

THE ADMINISTRATION SAYS

Prospects are increasing that taxpayers will get back the $85 billion spent to rescue GM and Chrysler

Agree: GM repaid a $6.7 billion loan five years early. The U.S. still has almost 61 percent of the common stock, and when GM makes an initial public offering this year, most of the proceeds will go to taxpayers. Chrysler Financial, the lending arm of Chrysler, repaid $1.9 billion to taxpapers. A program supporting parts suppliers will wrap up soon, and taxpayers will be repaid.

Disagree: Only $13 billion of the $85 billion in total rescue funds has been repaid. Of that, a $6.7 billion loan to GM was repaid with government funds, meaning taxpayers were paying themselves back. The market would have to value GM at $80 billion for taxpayers to break even on that investment.

Green is a reporter for Bloomberg News. Welch is Bloomberg Businessweek's Detroit bureau chief.

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