Auto Bailouts Are No Silver Bullet for Obama
President Obama and his surrogates are clearly planning to tout his bailout of the auto industry as one of his crowning achievements this year as he seeks a second term as president. He brings it up in virtually every campaign speech, and both he and Vice President Biden have built entire speeches around the topic during campaign visits to the Midwest in early 2012.
But there are (at least) five good reasons why the auto bailouts will not deliver big votes for Obama in the 2012:
1. The bailout of the auto industry is not very popular with most Americans. A recent Gallup poll indicates that a majority of Americans disapprove of the bailouts, despite continuous touting by the White House as one of their major successes. Independent voter dissapprovers out-number approvers 50% to 45%, and college graduates and those earning less than $90,000 per year more likely to disapprove.
2. The manner in which the bailouts/managed bankruptcies were handled rubs a lot of people the wrong way. Obama’s political allies (aka the United Auto Workers) were given preferential treatment in the restructured companies with the UAW being given an ownership stake in Chrysler and becoming one of GM’s largest shareholders. Debt holders of the original companies took a back seat in the out-of-court prepackaged bankruptcy Obama orchestrated.
3. Tens of thousands of jobs were lost as a result of the auto bailouts, according to TARP’s Inspector General. The audit concluded that Obama’s task force – many of whom had little or no experience in the auto industry – rushed to close dealerships without a clear understanding of the impact on jobs or the potential cost savings they would generate. GM and Chrysler were not in a position to object to the reckless actions ordered by the Treasury Department and executed with little oversight.
4. American taxpayers were left with the bill for President Obama’s favorite talking point on the campaign trail. More than $100 billion in taxpayer assistance and other help was extended to the auto companies in 2009 and 2010 to boost manufacturing, suppliers, auto finance companies and showrooms. Taxpayers still own 26% of GM, and shares will need to rise to $53 from their current $25 to recoup the taxpayer “investment” in the company, and the government already booked a $1.3 billion loss on its $12.5 billion bailout of Chrysler. Current estimates are that the GM bailout cost taxpayers a whopping $24 billion. I never hear the president mention any of this when he brags about how successful the auto bailouts were.
Something else that rarely gets mentioned is the lackluster performance of Ally Financial (formerly GMAC), which received $17 billion as part of the GM bailout. According to Reuters, “Ally Financial, Inc. fared by far the worst of 19 banks examined by the Federal Reserve.” Not comforting news, given that the U.S. Treasury owns 74 percent of Ally, and not a good sign for taxpayers hoping to see their “investment” pay off .
5. Most Americans don’t like the government picking winners and losers or tipping the scales in favor of one company over another. The auto bailouts clearly created an unfair competitive advantage for the companies that received taxpayer bailouts. Not only were the bailouts themselves a massive government intrusion into the free market, the GM deal was structured to give the new GM several competitive advantages for years to come – advantages that will cost companies like Ford and the American taxpayers billions of dollars for many years.
- By wiping GM’s debt off the books, the government left GM with substantially lower borrowing costs than its competitors that didn’t take a taxpayer bailout. Because auto financing not only generates significant revenue for auto companies, but also drive new car sales, this puts companies like Ford at a significant disadvantage to GM. Simply put, GM can offer better deals on its cars than Ford can, and they can make more money doing it.
- According to the Wall Street Journal, GM walked away from its government-funded restructuring with a tax break that could be worth $45 billion. Companies that go through bankruptcy reorganization typically cannot retain tax benefits for losses in prior years, but “the federal government, in a little-noticed ruling last year, decided that companies that received U.S. bailout money under the Troubled Asset Relief Program won't fall under that rule.” So, when you hear that GM had record profits last year, realize that they achieved this by using losses from the old GM to offset taxes on last year’s profits. Maybe there should be an asterisk next to that “record.”
- A clear conflict of interest exists when the National Highway Traffic Safety Administration (NHTSA) is slow to report that President Obama’s favorite car, the Chevy Volt, was catching fire. Anyone who has worked with NHTSA knows that it’s odd that they stated publicly that the Volt was safe before they even started their investigation. One can’t help but wonder if the Volt fire story would have been handled differently without the political influences involved when the government is the biggest shareholder in the company that makes the car.
- What other company gets to have the President and Vice President constantly praise its products publicly? Clearly, President Obama has a stake in the success of GM, so he goes out of his way to encourage the public to buy its products. It’s not what our president should be doing.
If the media were doing their job, President Obama would be as embarrassed about the taxpayer money he blew bailing out GM and Chrysler as he is about his historic healthcare scheme. He doesn’t talk about Obamacare, because the American people have figured out that it’s a disaster.
If the media took the time to report the truth about the auto bailouts, he’d stop bragging about that, too. I’m betting that the American people will figure this one out on their own – like they did with Obamacare – and it won’t be the silver bullet Obama was hoping this November.
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