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President Barack Obama and Rep. Marcy Kaptur chat with patrons while stopping for lunch at Rudy's Hot Dog on June 3 in Toledo, Ohio. Obama is in Toledo, Ohio to visit Chrysler's Toledo Assembly complex and speak to workers. (Mandel Ngan/AFP/Getty Images)
Recent gains in U.S. auto industry market shares are being highlighted by officials in the Obama administration this week. The president will make a visit to a Chrysler factory in Toledo, Ohio on Friday.
With the president’s help, Chrysler Corporation and General Motors (GM) have recovered from the imminent demise they faced just two years ago.
GM is expanding production and adding jobs, and Chrysler recently repaid its outstanding loans to the U.S. Treasury six years earlier than originally planned.
The auto industry has shown its strongest period of job growth since the late 1990s, adding 115,000 jobs. The administration is touting the industry as leading an upswing in manufacturing across the country. Last year, the Big Three U.S. automakers gained market share for the first time since 1995.
“When the President took office, we had an automobile industry in absolute free-fall,” said Assistant to the President for Manufacturing Policy, Ron Bloom to reporters on Wednesday.
To avoid a collapse and uncontrolled liquidations beginning in Dec. 2008, President George W. Bush provided more than $17 billion in temporary loans to Chrysler and GM (Ford declined the bailout loan), but it was not enough.
Independent analysts estimated a collapse would affect over 1 million jobs which relied on U.S. auto manufacturing. To save these jobs, President Obama made a controversial decision to invest in Chrysler and GM, on the condition that they submit plans showing how they would return to viability.
With the help of an auto task force, Obama determined that Chrysler should enter into bankruptcy and restructure. The government also backed a significant purchase of Chrysler shares by Italian automaker Fiat S.p.A. The transfer of management skills and fuel efficient technology from Fiat is largely credited with Chrysler’s turnaround.
The government investment in shares and loans totaled $80 billion dollars. Half of that amount has been returned. The government still owns shares in GM, a minor equity stake in Chrysler, and a portion of Ally Financial—a GM-related corporation.
The most recent estimates issued by the Congressional Budget Office predicts an ultimate taxpayer loss of approximately $14 billion on investments. A sell off of shares will occur when it is “practical,” Bloom said.
“There is no joy…in recognizing that all of this money will not be returned,” Bloom said, but the losses are worth it to have saved an industry, hundreds of thousands of jobs, and the communities at large which depend on auto manufacturing.”
James Gattuso, senior research fellow in regulatory policy with the conservative think tank, Heritage Foundation, said the president’s decision to force Chrysler into bankruptcy deserves credit, but the government’s decision to invest was “very problematic.”
Gattuso warned that too much celebrating at this point in time is also dangerous, as it could send the signal to the markets that the government will intervene the next time there is a crisis.
When the government took a stake in the two private companies, criticism was rampant. The concern was that it would become a precedent for failing businesses to rely on the government for a bailout.
We have been lucky up until now that this hasn’t happened, Gattuso said.
Talking to reporters, Bloom acknowledged the importance of the government getting rid of its shares.
“This is not the normal way that a government ought to behave toward private actors…the longer you stay in, the more you signal to the market that the government intends to be in the business of owning companies.”
Obama, in a recent statement, explained that what he did required “making some tough decisions—but I was not willing to walk away from the workers at Chrysler and the communities that rely on this iconic American company.”
The administration has also argued that the extraordinary nature of the financial crisis precipitated the extraordinary government intervention.
The president will visit with plant workers at Chrysler Group’s Toledo Supplier Park on Friday, and visit with local business owners and residents to learn from them how the survival of their factory has benefitted their lives.
The Toledo factory builds the Jeep Wrangler, Jeep Liberty and Dodge Nitro, and employs 1,700 workers. An additional 3,000 workers at a nearby plant produce parts for the Wrangler.
The administration is celebrating a success that “was anything but assured,” U.S. Treasury Secretary Timothy Geithner wrote in an Op-ed published in the Washington Post this week.
“The industry is mounting one of the most improbable turnarounds in recent history,” Geithner wrote. “The domestic automakers are getting stronger.”
Chrysler was in the worst position of the three automakers when the recession hit, the result of years of bad decisions which left them vulnerable to foreign competitors.“What happens next for Chrysler and GM is up to their executives, managers and workers—just as with any other company. We cannot guarantee their success, and at some point they may stumble. But we’ve given them a better shot. The choice to stop the American automobile industry from unraveling was the right one,” Geithner wrote.
