General Motors and Obama

The Democrats and President Obama are touting the success of General Motors, saying that they brought it back from the dead. Is this true?

A little background is useful here. The Bush administration decided to intervene at the firm, offering a bridge loan on the condition that it draw up a deeply revised business plan. But it was President Obama who really shook things up by nationalizing the company, seeing to it that the federal government violated normal bankruptcy processes and legal precedent to protect the defective element at the heart of GM’s troubles: the financial interests of the UAW. Gee, who would have thought . . . The Dems would want to protect unions over the interests of the public at large?

How did Obama’s people do this? It forced GM’s bondholders into losing a bundle in order to sweeten the pot for the UAW, unlike what would have happened if Mitt Romney had been in charge. Romney’s proposal for a structured bankruptcy would have involved the federal government too, but with a key difference: The UAW contracts would have been renegotiated, and GM’s executive suites would have been cleaned out, placing the company on a path toward innovation and self-sufficiency rather than permanent life support. So, here we go again—Obama has set up another group dependent on the government.

But wait, the Dems say. We saved tons of jobs by doing this. Isn’t that good? Well, they base this claim on the assumption that if GM and Chrysler had gone into normal bankruptcy proceedings, the entire enterprise of automobile manufacturing in the United States would have collapsed — not only at GM and Chrysler but at Ford and foreign transplants such as Toyota and Honda. Does that seem realistic? Nope. Not only that, the Democrats’ argument goes, but practically every parts maker, supplier, warehousing agency, and services firm dedicated to the car industry would have collapsed, too. From what I’ve read, it’s unlikely that even GM or Chrysler would have stopped production during bankruptcy: The assembly lines would have continued rolling, interest and debt payments would have been cut, and — here’s the problem for Democrats — union contracts would have been renegotiated. Far from having saved 1.5 million jobs, it is not clear that the GM bailout saved any — only that it preserved the UAW’s unsustainable arrangement.

So how’s it turned out for GM? The company has added only about 4,500 workers, a number not even close to offsetting the 63,000 workers that its dealerships had to let go when the terms of the bailout unilaterally shut them down. GM shares have lost half their value since January 2011. And while the passing of the Great Recession has meant growing sales for all automakers, GM is seriously lagging behind its competitors: Its sales are up 10 percent, a fraction of the increases at Kia, Toyota, Volkswagen, and Porsche. With its sales weak, its share price crashing, and its business model still a mess, some analysts already are predicting that GM will return to bankruptcy — but not until after the election. I guess Obama can resurrect the company once again. This would all be funny except American jobs are on the line, and the American taxpayer is on the hook since we own 60% of the company.

This is the bottom line:  it is not worthwhile to save jobs at enterprises that cannot compete on their own merits. So long as the federal government is massively subsidizing the operation, a job at GM is a welfare program, something the Dems really like. More dependency.

The GM bailout was a bad deal for GM’s creditors, for U.S. taxpayers, and, in the long run, for the U.S. automobile industry and our overall national competitiveness. This is just one example of what we have to look forward to if Obama is reelected.