Obama’s ‘Victory Dance’ on Auto Bailouts Could Hurt Business, Industry Expert Warns

May 27, 2011 - 3:55 AM

GM logo

In this Nov. 29, 2010 photo, the logo for a GM dealership in Redwood City, Calif., is diplayed. (AP Photo/Paul Sakuma)

(CNSNews.com) The Obama administration’s recent touting of its unpopular bailout of American automakers General Motors and Chrysler may actually end up hurting business at the two recovering firms, an industry expert tells CNSNews.com.

Speaking on condition of anonymity, the expert said that if the government really wants to ensure that it breaks even on its investment in GM and Chrysler, using the bailouts for political purposes will not help.

Market research indicated that the bailouts were unpopular and had a stigmatizing effect on automakers, added the expert.

“It the [government’s] interest at this point is to make sure that the taxpayer recovers the full amount of money that was invested in GM [and Chrysler] using GM to do a victory dance does not help that, because there is market research that shows that the bailout still remains a very unpopular decision. To continue to politicize the company, for good or for bad, does not help the company in the marketplace.”

Recently, Obama has cited GM’s return to profitability as evidence that bailing out both auto giants was the right thing to do. In a May 5 fundraising appeal, Obama’s presidential campaign touted the bailout as a tough call that saved 1.4 million jobs.

“The President made tough choices because he knew the stakes – and the real stories of this turnaround are the people whose jobs were saved, the communities that survived, and the will of working people to fight for and transform one of America’s most vital industries,” the letter read.

The Democratic National Committee is also promoting Obama’s bailout efforts and attacking Republican presidential candidates for opposing them.

“While Republicans and pundits disagreed – President Obama made the tough choice to grant American automakers a lifesaving loan,” says a new DNC ad. It omits the fact that the bailouts began under President George W. Bush.

The industry expert acknowledged that being used as a political “tool” was the price GM and Chrysler would have to pay for being bailed out, but pointed out that in the highy competitive auto industry, a company’s appearance matters.

“It’s a hypercompetitive industry; there’s very very little separation in the industry with respect to quality and reliability,” he said. “There are people who have taken a principled stand on the issue of the bailouts and will not consider a GM product regardless of the merits of the car or the truck.

“The more that it’s used as a political talking point – in this case with the president – that only entrenches that position and among some consumers reignites a very unpopular decision.”

The industry insider said that the more Obama talks up the bailouts, the more politics enters the showrooms and the more the still-unpopular bailout will hurt the auto business, further hampering the efforts of GM and Chrysler to turn their companies around.

As far as the automakers are concerned the government’s exit from their business “can’t happen quick enough,” the expert said, highlighting the fact that the sooner the Treasury Department sells its remaining shares in both companies the faster they can get back to being fully private companies.

“The Treasury’s exit can’t happen quick enough. The company simply wants to get back to being a car company. The quicker that that happens the quicker the company’s products and prospects will be judged on [their] merits.”

The expert also told CNSNews.com that it was “inconsistent” for Obama to claim the bailouts were responsible for the companies’ return to profitability, while at the same time insisting that the government was not running their business.

“If your overall interest is to recover as much taxpayer money as you can [then] this does not help,” the expert said. “Politicizing GM’s current success does not help that. There’s still that market research that shows the bailout has an effect on purchase consideration. Which is it, guys?”

The Treasury Department still owns 26.5 percent of GM and 8.6 percent of Chrysler, with poor prospects for earning back its entire investment in both companies. Their stock would have to trade significantly higher than its current price for the government to make its money back.