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The Democrats' False Narrative on the Auto Industry

In early December, unhappy with the automakers’ restructuring plans, the Senate voted down a taxpayer bailout, but lame-duck president George W. Bush, by executive order, overrode Section 102 of the TARP funding, meant to provide bridge loans to prop up failing financial institutions while they came up with restructuring plans, and issued them to GM and Chrysler. This turned out to be not only (probably) illegal, but a terrible policy, because it gave the Obama administration an excuse, as a “watchdog on the taxpayers’ money,” to interfere with what should have been a properly structured bankruptcy for both companies when it came into power in January, to aid its political allies.

What Jennifer Granholm and others need to understand is that in fact both GM and Chrysler did file for bankruptcy, and did restructure. But rather than doing it before an impartial bankruptcy judge with a negotiation between the companies and their creditors, as a major (new) creditor, the federal government (Obama’s federal government) became the arbiter instead, screwing the existing bondholders. Rather than the UAW being forced to renegotiate the terms of its contracts with those companies that had been a partial cause of their financial failure, the administration simply handed part of them over to the union, with an arbitrary amount of stock in return for their pension obligations, and converting its own debt to stock.

What would have happened had the government not stepped in? Well, we know what wouldn’t have happened. It wouldn’t have been the end of the auto industry in America. Honda, Nissan, Toyota, Mercedes and the other companies would have continued to manufacture cars in the U.S. without missing a beat. It wouldn’t even have been the end of the American auto industry, because Ford never received any government funds, and they have actually been pulling thousands of jobs back from Mexico and Asia to the U.S. Chrysler and GM would have probably continued in some form, and undergone a proper restructuring, including renegotiation of the union contracts to make them competitive once more. In the worst case, liquidation, Ford (or someone else, perhaps even a startup) could have acquired their assets and expanded its own production to satisfy the demand created by the disappearance of the two companies.

That is, contra the latest false narrative of the campaign, Obama didn’t “save the car companies from bankruptcy,” let alone “save the auto industry” -- he simply saved the UAW, the administration’s political ally, from a bankruptcy judge. Judge Gerber’s ruling in July of 2009 was simply a rubber stamp of a corrupt government restructuring by fiat.