The GM rescue matters to everyone
Nobody familiar with the electoral map should be surprised that the auto industry keeps coming up in the presidential campaign, as it did on Monday night during a debate that was supposed to focus on foreign policy. The entire election could come down to Ohio. And in Ohio, about one out of every eight jobs has ties to the carmakers.
Take it from somebody who lives over the border in Michigan, the only state that has even more auto-related jobs than Ohio. In these parts, people care a lot about what Barack Obama did -- and what Mitt Romney might have done -- when Chrysler and General Motors were in trouble.
But those of us in auto country shouldn't be the only ones thinking about this episode. Perhaps more than any presidential campaign in recent memory, this election offers a set of stark choices. Mr. Obama and Mr. Romney have very different philosophies of government. And they have very different leadership styles. The auto industry story puts these contrasts into almost perfect relief.
• • •
The American automakers were in trouble long before Chrysler and GM came to Washington in late 2008, seeking emergency assistance. Once models of American efficiency and emblems of American industrial power, the companies had struggled to keep up with foreign competitors. Unburdened by similar union contracts and the obligation to provide health benefits, and guided by more imaginative leadership, these foreign competitors paid lower compensation and built better cars. By the 1980s, all three American carmakers, including Ford, were losing market share. It was only a matter of time before they were losing money.
President George W. Bush gave Chrysler and General Motors a temporary loan, enough to get them through the beginning of 2009 -- and left the industry's fate up to the next president. Under the same law that rescued the financial industry, Mr. Obama had unilateral authority to authorize a loan.
But plenty of people were telling Mr. Obama not to act. As they saw it, government shouldn't be in the business of rescuing companies or industries. Instead of asking government for help, they suggested, Chrysler and GM should do what companies usually do when they run out of money: downsize and reorganize under the supervision of a bankruptcy judge, using loans from the private sector to finance operations while the reorganization is under way.
The counter-argument, made by folks like me, was that this auto-industry crisis was an unusual situation requiring unusual action. Because of the financial collapse, no private lender was in a position to provide Chrysler and GM with money. If the government turned them down, their only recourse would be liquidation -- they'd have to shut down operations and sell off assets. Their workers, numbering in the hundreds of thousands, would quickly become unemployed.
And the damage wouldn't stop there. The companies that provided Chrysler and GM with parts would start shutting down, disrupting the entire supply chain and threatening even relatively healthy carmakers, like Ford. Credible estimates suggested that more than a million people would lose their jobs.
President Obama decided on a rescue, and he was tougher on the companies than most people remember: He made government loans contingent on them going into bankruptcy, a move many thought might handicap them permanently, and he extracted concessions from all parties, even the labor unions. But his decision to back the companies was firm and unequivocal. The industry was too important to the Midwest and to the nation as a whole, he said. If government did not act to save it, nobody would. And the effects could be catastrophic.
What would Mr. Romney have done? It's impossible to know for sure, in part because he's made inconsistent and, at times, contradictory statements. But he has been relatively consistent on one point: He wanted the automakers to get financing from the private sector. They could ask the government to backstop warranties on their cars and to guarantee "post-bankruptcy" financing, but they should go to the private sector for the loans, even though such loans would have been impossible to get. Even Bain Capital rejected an appeal, according to published reports.
Like other critics of the rescue, Mr. Romney opposed government loans because he doubted that officials could run the auto industry in a way that was good for the carmakers, its workers and the country as a whole. But that is precisely what has happened. Today, Chrysler and GM are making money. They are also making good cars. All three domestic carmakers have stopped shedding workers and, these days, nary a month goes by when the news doesn't make announcements about new shifts or new hires.
The effects on the regional economy have been impressive. Unemployment in the auto-producing states has fallen more quickly than in any other part of the country. And while Michigan's unemployment rate went up to 9 percent last month, Ohio's sits at 7 percent after falling precipitously for most the last three years. That's below the national average, which itself has been lowered by the auto sector's strong performance over the last two years.
The Obama administration can't take all the credit for this. But it can take a lot, as even some former critics of the rescue have conceded. "An apology is due to Barack Obama," the editors of the Economist magazine wrote in August 2010. "His takeover of GM could have gone horribly wrong, but it has not."
• • •
Looking back, the key disagreement between Mr. Obama and Mr. Romney wasn't over whether the auto industry should survive. It was over whether the government should act to make the industry's survival possible -- whether, facing an instance of market breakdown, the government should intervene in order to protect hundreds of thousands of people, and maybe more than a million, from losing their jobs.
That's the same philosophical argument Mr. Obama and Mr. Romney are having when they debate other areas of policy. When investors take risks that exploit consumers and jeopardize the economy, should government stop them from taking those risks? When health insurers make profits by discriminating against people with serious medical issues, should government force insurers to treat those people like everybody else? When manufacturers and energy companies fill the air with carbon, creating climate problems that will affect everybody on the planet, should government find ways to curb their activities?
Mr. Obama thinks the answer to these questions is yes. Mr. Romney thinks it is no.
But the Detroit rescue reveals another difference between the two. In 2009, you didn't need a crystal ball to see that Michigan, Ohio and the rest of the Midwest would be important parts of the 2012 election. On the other hand, saving the automakers would entail its own risks.
The public by that point was tired of bailouts and, according to polls, they didn't find the autoworkers a whole lot more sympathetic than the bankers. Conditioned by years of anti-union propaganda and stories of substandard American cars, the public had come to see employees of the Big Three as pampered, slothful and undeserving of help. Even in the Midwest, where the effects of a shutdown would be most acute, the rescue elicited mixed responses.
Mr. Obama understood this. Even if the rescue worked as he hoped it would, chances were good that progress would be slow -- that, by today, the companies would still be struggling, creating a political embarrassment. Mr. Obama approved the rescue anyway.
This included granting assistance to Chrysler, which was opposed by half of his economic advisers. They feared, among other things, that the shrinking car market was too small to support both Chrysler and GM. Mr. Obama's rationale was simple: If he had the power to stop the devastation of either company shutting down, he was going to use it.
Mr. Romney's inconsistent rhetoric may leave us wondering precisely what he really thought and would have done. But they tell us a lot about how he operates in the face of political pressure.
When Mr. Romney was trying to appease conservatives and win the Republican primaries, he went out of his way to attack the rescue as a waste of taxpayer dollars. When he was trying to win over voters in Michigan and, now, in Ohio, he has emphasized the similarities between the remedy he proposed initially and the solution Mr. Obama eventually chose. Can anybody who's followed these shifts say honestly that Mitt Romney has the mettle to make a tough decision and stick with it?
Put it all together, and it's possible to draw from the auto industry rescue a pretty good lesson about the real differences between the candidates. Mr. Obama understands that the market doesn't always work on its own -- that sometimes government must intervene in order to protect Americans from economic harm. Mr. Romney doesn't. Mr. Obama is also willing to act in the face of political peril; Mr. Romney isn't.
Those differences should matter to all Americans, not just those who live in Michigan and Ohio.
First Published October 28, 2012 12:00 am