Did President Obama Save the Auto Industry?

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It has been a common belief that President Obama is the one who saved the American auto markets putting it back on its feet by taking decisive and quick action. This opinion may be questioned by skeptics, who claim that the other party made its contribution, but one thing is certain: the industry that appeared as a result of Obama’s actions became more profitable, efficient, and competitive (McNulty and Wisner 20).

In 2008, the whole American automobile industry was on the verge of extinction: almost 250,000 employees working in the field were laid off while the prices for gas were increasing. Between 2008 and 2010, car manufacturers, who did not manage to come up with an effective solution to the problem, we’re forced to close 16 plants. More closures were scheduled for the years to follow. Moreover, car producers had to cut off their connections with more than 2,500 dealerships. Retired workers of the industry were denied their health care insurance – this obligation was passed to an independent trust fund. As a result of all the failure, such industry giants as General Motors and Chrysler were unable to pay their bills, and to avoid a collapse had to plead for the government’s help (McNulty and Wisner 20).

Some people might say that President Obama helped tremendously in the bailout of General Motors. The federal government took over GM and Chrysler in March of 2009. GM CEO Rick Wagoner was fired and required Chrysler to merge with Italy’s Fiat Company. Obama’s Administration took advantage of the take-over. It set a new auto efficiency standards to force the companies to be more competitive against Japanese and German Companies. The reason why the Obama Administration took over General Motors was that in 2008 GM was in desperate need for money and the company was paying too much out the GM Legacy, which is pension packages being paid to retired GM employees, but the problem arose why the people high up in the company didn’t take pay cuts.

The Bailout started in 2008, when General Motors asked the government, practically Congress, for a 50 Billion dollar loan to help them avoid going under and lose thousands and thousands of jobs. Ford, on the other hand, was not looking for a loan from the government. At first, Congress refused the request and told the automakers to refine and fine-tune their request for the loan. Senate Leader Harry Reid, a supporter for the automakers, said the Big 3 (General Motors, GMAC, and Chrysler) should return “…present a responsible plan that gives us a realistic chance to get the needed votes”. When all the CEOs came to Washington D.C. to talk over the deal with a lobbyist, Congress, and the senate, they flew in corporate jets. Which doesn’t make much sense when money is spent on flying private (The Balance 6). After the meeting between Congress and the automakers, congress agreed to give the automaker’s $23.4 billion in effort to bail them out. Even though Congress was slow lending General Motors the money, when Barack Obama was elected in 2008, he made the process of the bailout speed up a bit and here was his thoughts, “that was not just writing a check but insisting on collaboration between management and workers and suppliers and dealers and shareholders, where everybody had to make some sacrifices. There was clear-eyed recognition that we couldn’t sustain business as usual. That’s what made this successful. If it had been just about putting more money in without restructuring these companies, we would have seen perhaps some of the bleedings slowed but we wouldn’t have cured the patient.”

As a result of his policy, the American auto industry came out not only with the government’s money but also with a different set of owners and different structures. Besides Fiat, which became the largest stakeholder of Chrysler, the retiree fund also received its percentage from both Chrysler and General Motors. The latter gave 32 percent of its shares to the government and 35 percent – to private shareholders. The revived companies could hire new employees at lower pay when the union gave up strikes (Goolsbee and Krueger 6).

The bailout is now officially over and the Treasury Department sold its final 2 percent of GM shares making critics admit that the company has been freed from an ironic epithet “Government Motors”. Even though Chrysler remains a unit of Fiat, companies ended up with increased sales: the gain amounted to more than $26 billion, which means that GM and Chrysler are not only profitable but unprecedentedly profitable as they currently earn much more than they had over several decades. The sales statistics in the US between 2010 and 2017 shows the evident success of the measures (Goolsbee and Krueger 10).

Fig.1. The sales statistics in the US between 2010 and 2017 shows the evident success of the measures

Also, the results obtained had a considerable impact on the employment statistics: 250,000 labor losses have been successfully restored (Goolsbee and Krueger 6).

The most significant loss of the whole operation is financial. The whole operation cost taxpayers around $80 billion, which makes critics claim that the rescue of auto giants came at too high a price. According to different estimates, about $23 billion has been lost without any chance of being repaid. Partially, it happened because the retiree health benefits fund was treated too generously by the unions, which gave much more than it deserved (McNulty and Wisner 23).

However, the proponents of the bailout insist that unless the measures had been taken, the industry would have lost almost two million jobs and huge amounts of money as a result of reduced economic production, which may have led to an overall break down. It was estimated that 1.88 million job losses would have followed if General Motored had not been supported by the government; 4.15 million jobs would have been lost if the whole automobile industry had gone bankrupt; $39.4 billion would have hit the government (including the lost money of taxpayers) that would have had to provide unemployment payments to those who were affected by the industry disaster; $105.3 billion would have been the cost of the total collapse of the whole industry (McNulty and Wisner 24).

As far as President Obama’s attitude to the issue is concerned, he clearly states that the bailout was worth the candles. Moreover, he is sure that this was the only possible course of action under such circumstances and that these measures had a positive impact on the population, too. Indeed, it cannot be denied that auto bailouts were perceived negatively by the majority of Americans when they were introduced by President Bush. However, after they managed to save the industry from bankruptcy, their popularity has significantly increased (Goolsbee and Krueger 11).

When the President visited workers at plants, he claimed that betting on the success of the recovery was the right thing to do as they lived up to their promise and the money spent on the bailout has paid off. Obama is positive about the industry’s revival even though there is still no guarantee that the results obtained are going to be maintained in the future. Moreover, the President took measures against everyone who opposed the policy of bailouts. In his response to Republican opposition, he explained that if the government had remained passive on the peak of the auto crisis (as many politicians claimed it should do) and let the industry go bankrupt, the consequences for the country would be deplorable: a lot of companies, suppliers, distributors, and other stakeholders would have fallen victims of the economic breakdown. The President emphasized the fact that the government has already sold its shares of General Motors, which proves that it never had any intention to take control of the company. Moreover, he believes that the industry is now ready to shift for itself and repay taxpayers everything that the government invested in it at the time of hardship (Goolsbee and Krueger 15).

The President’s arguments seemed to be rather convincing as The Economist, one of the major opponents of the bailout intervention, offered an apology to Obama for its initial opinion. The magazine admitted that not only General Motors would have been liquidated but also other car manufacturers as they completely depend on the supply chain. This would have created panic and an overall collapse of the industry. The magazine also stressed the fact that the President did the right thing when he refused to use his stakes in General Motors for achieving personal and political goals, which proves that this primary concern was to help the companies regain their positions and continue to contribute to the prosperity of the US economy (Goolsbee and Krueger 19).

In conclusion, it can be noted that it is impossible to know what outcomes would have followed unless the government had chosen to interfere to help the industry out. It is highly possible that even those who believe that the intervention was a mistake would now accuse Obama of neglect if he had decided to ignore the requests for help. Thus, no matter what criticism the policy may currently face, the massive loss of jobs, the supply chain disruption as well as side effects on other car manufacturers were successfully prevented.

Works Cited

McNulty, Peggy A., and Joel D. Wisner. “The impacts of the 2008 government bailouts on the US automobile industry.” The Journal of Human Resource and Adult Learning, vol. 10, no. 2, 2014, pp. 20-29.

Goolsbee, Austan D., and Alan B. Krueger. “A retrospective look at rescuing and restructuring general motors and chrysler.” The Journal of Economic Perspectives, vol. 29, no. 2, 2015, pp. 3-23.

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Did President Obama Save the Auto Industry?

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