If political courage is defined by doing the right thing even when it is unpopular, President Obama’s rescue of the American auto industry deserves a Profile in Courage:
It was, to put it gently, unpopular. In polls at the time, 3 in 4 Americans said Washington should not broaden its effort to help the carmakers, as it ended up doing; nearly 6 in 10 poll respondents opposed the bailouts once they happened; and 54 percent of people said they were “mostly bad for the economy.” Largely negative polls accumulated through 2010 and 2011, too.
Those were the numbers Mitt Romney was looking at when he, in effect, recommended that the president let the industry die. With no private money available to finance a managed bankruptcy, Romney’s plan would have put the car makers and their suppliers out of business, left their assets and pensions worth cents on the dollar, and their jobs permanently destroyed. That’s a model Romney perfected at Bain Capital to enrich himself and his partners, but it’s not a model that would have helped the American people. Obama stepped in and look at us now!
Chrysler and General Motors, the major beneficiaries of the auto rescue, have both reported their best profits in more than a decade, and both were already <a href="planning to add jobs this year. With factories now struggling to meet demand, both foreign and domestic auto companies are planning to add even more jobs, and as the Center for American Progress’ Adam Hersh and Jane Farrell noted in April, the industry has added more than 139,000 jobs in the last three years.
The strength of the auto industry is yet another sign that letting it fail would have been a major mistake. Not only would it have cost more than a million jobs at a time when the economy was struggling, it would have prevented the current growth that is helping both the industry and the American economy recover.
USA Today also reports that the carmakers are struggling to meet demand:
Automakers are pushing factories and workers to the limit to try to meet burgeoning demand for new vehicles.
Some plants are adding third work shifts. Others are piling on worker overtime and six-day weeks. And Ford Motor and Chrysler Group are cutting out or reducing the annual two-week July shutdown at several plants this summer to add thousands of vehicles to their output.
“We have many plants working at maximum capacity now,” says Ford spokeswoman Marcey Evans. “We’re building as many (cars) as we can.”
When Mitt Romney tried to take “a lot of credit” for this turnaround in Detroit’s fortunes, even Forbes laughed at him:
It’s a common thing for a presidential candidate to pontificate about an issue of the day. It’s quite another for one to take credit for something he had no discernible role in.
But that isn’t stopping Mitt Romney. On Monday, in an interview with Cleveland‘s WEWS-TV, Romney said, “I’ll take a lot of credit” for the revival of the Detroit companies that went through federally sponsored bankruptcies.
As Justin Hyde on Motoramic put it, “It’s too bad for Romney that Al Gore invented the Internet so we could keep track of what actually happened.”
Heh. Indeed.
GM and Chrysler was basket cases for years before the economic crisis.
“Market discipline” utterly failed to reform these money-losing companies, but smart government oversight got the job done.
This isn’t just about Mitt Romney being wrong on a policy; this is a dagger through the heart of the core principle of conservative economic thought.
GM was the poster child for crony capitalism. It’s incredible nepotism filled (extremely deep) management ranks with incompetents who owed their positions to their grandfathers and great-grandfathers.
I get what you are saying, particularly at the plant level.
But have had all of them as client I’d say the problem was much more at the corporate level who were content to offer deep rebates and discounts to sell cars rather than being committed to quality work and strong desire to design cars people want to buy.
Ten years ago I was at Chrysler and hardly a person there didn’t know they had WAY too many dealers but EVERYONE knew nothing would be done about it. Same at GM.
I also had one big three engineer say to me, “you don’t understand. Toyota is the business of making cars. We are in the business of making money”
I also had one executive describe his business as being a bank that gives away cars instead of toasters with every loan.
Fundamentally not understanding there business and when they did not being willing to make tough decisions was at the root of there problems.
The car czar forced some of that, but particularly at Chrysler the fiat leadership has been remarkable in simply not allowing poor quality and bullshit decisions
I’ve got to disagree about the “too many dealers”. That was bad for the dealers but not the company. Lee Iacocca maintained that a car company’s customers are the dealers – not the end buyer. The car company sells cars to the dealers. The dealer pays interest on loans to buy the cars as soon as they arrive on the lot. Cars are not on consignment like books. Of course if the customers don’t buy cars the dealers won’t order them, but it is a secondary effect. Too many dealers is like saying one has too many customers. Of course Iacocca said you have to keep the dealers happy because they are customers and the dealers want a big territory without competition. IMHO the dumbest thing GM did was killing off existing Buick dealers to give their franchises to Pontiac dealers who hadn’t been able to sell the brand they had for years. One reason my last Pontiac was a 1979 (bought used from a Chevrolet dealer) was that I don’t know any Pontiac dealers I would feel safe turning my back on.
You would think so, but in fact it just isn’t true.
More dealers takes more effort to support.
More dealers wind up competing with each other
It means you have to build more inventory just to stock the dealers. Cars you might wind buying back. Toyota and Honda typically might have only a few weeks inventory. At its worse Chrysler might have more than 200 days. Does matter that the dealer bought most of that if you didn’t know what people will be buying 200 days from now and you had to pay to build the inventory.
More dealers mean they tend to stay small, are poor marketing partners, have less to invest in their showrooms, and don’t have the scale and volume to offer as competitive prices. That mean the OEM too often has to offer discounts and rebates.
I dont recall the exact numbers but Toyota and Honda far outsold Chrysler with greater profit on less than about 1/5th the dealers.
Basically Chrysler never dropped any dealer no matter how poorly the were performing or hurting their brand. And everybody knew it at Chrysler. GM was almost as bad. Ford not so much but they were also helped by having many fewer nameplates and models. But it took the car czar to force the decision.
thanks for explaining. I couldn’t figure it out on my own.
Good points and GM certainly could have done a better job of culling dealers. Just picking an arbitray sales point was bad without regard to customer loyalty. Big dealers cutting prices to the bone and making it back by padding service bills and sharp practice with customers don’t help in the long run. I’m a pretty loyal GM customer and might not be typical but I doubt if I will ever buy a Buick again because GM cut the only two dealers I had respect for. This makes me ripe for brand switching. I’ve been looking at Volkswagen a lot lately. I thought about Hyundai a lot and was going to buy one but the local dealer kept trying to steer me toward a model I didn’t want and then I noticed the many defects on the cars on the showroom floor and thought “If he doesn’t fix obvious flaws on his showroom models, how will he treat flaws on my car?”, very similar to my feelings about builders whose model homes show shoddy workmanship.
Not that much. The dealers are independent businessmen. They buy or lease their facilities. They buy their inventory, cars and parts. They pay for technician training and special tooling. True, it takes more liaison personnel, but that is a small cost compared to production.
True, and falls under the heading of keeping the dealers happy.
But the dealers have to pay for that stock when it’s delivered. It is NOT consignment.
I understand and agree with what you’re getting at. However, the idea to “rename Detroit as Obama City” is one TRAFKATRP (The Racist Assholes Formerly Known as the Republican Party) would weep for joy over. Tie Obama to a primarily black city that’s lost half its population in the last 50 years? I can see the ads now, and they’d be really ugly. And wouldn’t say a word about the auto industry.
It’s a motif George Tierney, Jr., of Greenville, South Carolina could really get behind.
That’s actually why I like the idea. It’s also why it’s not totally unrealistic.
I’d guess that fewer Americans think of Detroit as a primarily black city that’s lost half its population in the last 50 years than think of it as the city that makes cars. “Perception is reality” can cut both ways.
Many of those folks opposing the bailouts — nothing like a majority, but a non-negligible minority — were on the left, opposing taxpayer money being thrown at companies who built bad cars, fought CAFE standards, shafted their unions, featherbedded their executives…
Go back and look at a place like DailyKos from the period and there were people lamenting the loss of an opportunity to make a clean break with, or at least not further enable, a car-centric, unsustainable culture.
Many of those folks opposing the bailouts — nothing like a majority, but a non-negligible minority — were on the left, opposing taxpayer money being thrown at companies who built bad cars, fought CAFE standards, shafted their unions, featherbedded their executives …
And there were also some people that were for the bailout because it wasn’t fair for the banks to be bailed out and then let Detroit rot. If the banks had been let go belly-up I don’t know that they’d be for the auto bailout. And don’t forget, the UAW took a very big hit to make the bailout work. They took a pretty big shit sandwich in it all despite what the idiots on the right say.
Osama Bin Laden is dead and General Motors is alive.
SHOULD BE ON BUMPER STICKERS, T-SHIRTS AND MUGS.
I don’t think anybody is going to forget the race riots in Detroit any time soon.
Nor the white flight.
Nor the business that moved out of the city, including a lot of auto plants which moved outside the city limits
Or the tax base losses that caused
And the eventual brain talent drain that put on the city and government. And the incompetence and impossibilities that put on the city.
Not to mention arbitration laws that made it impossible to truly negotiate with public employees
It was a perfect storm that will not be soon forgotten. But in addition to the bailouts and forced good decision making coming out of Detroit there are many good and hopeful stories of entrepreneurship and gentrification happening as well.
It was once a proud city. I think it will again.
Coleman Young was a disaster.
One example of many of incompetence and corruption.
But don’t minimize the impact of suburbs like Birmingham and Southfield and Royal Oak not paying a dime in tax revenue to help Detroit fund the city everyone depended on.
Or the fact that arbitration laws meant the government basically had no means to control labor costs. All they could do is layoff workers even though the needs of the city were getting greater not smaller.