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The Democrats’ False Narrative on the Auto Industry

No, Obama did not "save" the auto industry.

by
Rand Simberg

Bio

September 21, 2012 - 12:15 am
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Joe Biden has a bumper-sticker phrase to justify reelecting the president: “Bin Laden is dead, and GM is alive.” Some, such as former Michigan governor Jennifer Granholm, doubled down on the demagoguery during the Democratic National Convention, declaring that Barack Obama saved not just General Motors, but the auto industry itself. But is it really true that were it not for the president, there would be no American auto industry?

Let’s start with Governor Granholm’s claim that Romney said that the “industry should go bankrupt.” Here’s what he actually wrote at the time:

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In other words, he actually endorsed a government bailout. While it would no doubt have been better if the title of his piece hadn’t been “Let Detroit Go Bankrupt” (that likely came from the editorial page copy editor, not Romney himself), what he proposed was completely reasonable, in the context of a bailout (whether there should have been a bailout at all is a separate issue).

Part of the problem is that the governor is either ignorant herself or hopes that her listeners are ignorant of the meaning of the word “bankruptcy.” It doesn’t necessarily mean that the bankrupt company ceases to exist, let alone that the industry itself would disappear. It simply means that the business is restructured to allow it to continue to operate if it is producing viable products. This might include voiding existing contracts and agreements (including labor agreements), and renegotiating with creditors. But to listen to the Democrats, if Obama hadn’t stepped in, there would be no autos built in America today, and millions more people would be out of work. This is nonsense, on multiple levels.

Let’s review the history. In the fall of 2008, amid the general financial crisis and global recession, Ford, General Motors, and Chrysler were hemorrhaging money and came to the government with their hands out. There was a hearing in Washington (at which the well-compensated auto executives were stupidly criticized for attending via private jet, as if their time had no value). Rick Wagoner, then-head of GM, brazenly declared that failure to bail his company out would be the cause of a “catastrophic economic collapse” of the U.S. economy.

Ford was actually in reasonable shape to weather the economic storm compared to its two American competitors, having undergone restructuring on its own in the past half decade, but it came to the table because it didn’t want to be at a competitive disadvantage in terms of access to taxpayer funds. In addition, Alan Alan Mulally, its CEO, claimed that the loss of one or more of its competitors would affect its supplier base, which it shared with them. But all of these claims had to be taken with a grain of salt, considering how self-serving they were.

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