Playing defense on the economy, President Barack Obama may have found a potent “I told you so” argument in the rescue of General Motors. But will he get any credit for it?
Obama visits a Chrysler plant in Kokomo, Ind., on Tuesday with Vice President Joe Biden, reprising similar trips he made last summer to GM, Ford and Chrysler plants in Michigan and Illinois. His stewardship of the auto bailout — begun under President George W. Bush in the waning days of his term — could weigh heavily on the minds of voters throughout the industrial Midwest. Obama picked up key electoral votes there in 2008 but recently watched states like Michigan and Ohio elect Republican governors and members of Congress.
General Motors launched one of the largest initial public offerings in U.S. history last week, more than a year after it was pushed into bankruptcy by the Obama administration at a taxpayer cost of about $50 billion. The rescue of GM and Chrysler was roundly criticized by many Republicans and tea party candidates who said the government should not have intervened to save the carmakers.
“Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?” asked House Republican Leader John Boehner of Ohio when GM filed for bankruptcy in June 2009.
GM might prove Boehner wrong, giving Obama a stronger hand in the debate over how the government handled the auto meltdown. The bailout still remains unpopular with many Americans — and the futures of GM and Chrysler are far from certain — but GM’s return to the New York Stock Exchange and an expected IPO from Chrysler in 2011 could give Democrats a vivid example of economic recovery.
“The critics said this would never work. But the critics were wrong,” said Austan Goolsbee, Obama’s top economist, in a video released last week by the White House. Ron Bloom, one of the leaders of the auto task force, said in an interview that the rescue averted “a swath of economic devastation that would have remained as a scar on our nation for a long, long time if the president had not done what he did.”
GM, which posted three straight profitable quarters before the IPO, has buffed up the auto bailout’s exterior in several ways:
—The government’s ownership stake is expected to decline from nearly 61 percent to about 33 percent (once all shares are sold by investment banks underwriting the deal). The shift to a minority stakeholder role helps bolster Obama’s case that he’s not interested in running car companies.
—The government could collect about $13.6 billion from the sale. GM had previously paid back $9.5 billion, so taxpayers will have received nearly half of what they provided to the company. GM received $13.4 billion from the outgoing Bush administration and $36.1 billion from Obama’s White House.
—The Center for Automotive Research, an Ann Arbor, Mich., firm that receives funding from automakers, reported last week that the auto bailouts saved 1.1 million jobs in 2009. It estimated the Treasury Department avoided losing billions in Social Security receipts and personal income taxes. The report supports Obama’s argument that allowing the companies to liquidate would have devastated the economy; since the bankruptcies, automakers have added more than 77,000 jobs.
“Nobody could have seen things playing out quite as nicely as they did,” said Jeremy Anwyl, chief executive of Edmunds.com, an automotive website. “There’s lots to quibble about but when you step back and look at it overall, you have to say the task force, the bailout, the bankruptcies, that whole process has played out pretty well.”
Plenty of questions remain, however.
Obama, discussing the GM IPO last week, said taxpayers were “now positioned to recover more than my administration invested in GM.” The operative term is “my administration.” For taxpayers to recoup all $50 billion of their GM investment — the total amount given under both the administrations — the Treasury Department would need to sell its remaining 500 million shares at about $53 a share.
GM was trading at more than $34 per share on Monday. If the stock stayed in that range next year and the government sold its shares at that price, the proceeds would exceed the amount that the Obama administration sank into the auto giant.
Some of the tensions over the bailouts still simmer. Many car dealers protested efforts by GM and Chrysler to shutter dealerships and accused the auto task force of meddling in the closures, a charge the Treasury Department denies. Some conservatives saw it as a sellout to the United Auto Workers union, and bondholders and shareholders complained that the bankruptcy wiped out most of their investments.
Boehner, who is expected to become the next House speaker, said last week that GM’s bankruptcy “could have been handled in a more orderly way by a bankruptcy judge without the heavy hand of the federal government in the midst of it. When you look at the people who lost because of the government’s actions, we’re talking about tens of thousands of Americans who were punished as a result of the government’s actions.”
No one can declare victory on the auto bailout yet. GM still faces massive unfunded pension obligations and its European arm is losing money. U.S. taxpayers still own one-third of the company, making it difficult for the automaker to completely shed the “Government Motors” moniker that has scared off some customers. Chrysler, which was placed under the control of Italian automaker Fiat, has narrowed its losses but must prove it can produce winning vehicles before its anticipated IPO in 2011.
Historically, auto bailouts have been dicey propositions. British Leyland, which built the MG, was partially nationalized in the 1970s but suffered through declining market share and poor labor relations before eventually going out of business.
In 1980, Chrysler received $1.2 billion in federal loan guarantees to prevent the automaker’s collapse. Chrysler, helped by the success of the K-Car and Lee Iacocca’s charisma, paid back its loans seven years early and the government made more than $300 million on the deal.
Iacocca’s approach would be welcome three decades later. “We at Chrysler borrow money the old-fashioned way,” Iacocca said at the time. “We pay it back.”
Source: The Associated Press.