Currently, the Obama legacy is being assessed by pundits from both the right and the left. Whatever the case in terms of race relations, the economy, and the Mideast including Syria, Iraq, and Afghanistan, one thing cannot be denied. Under his leadership, the collapse of the American Automobile Industry was averted. Had Mitt Romney been in charge, bankruptcy and all the uncertainty associated with it would have transpired. Bankruptcy lawyers would have gotten rich, workers would have been thrown out of work. And those advocates of the free market would have been assuaged. Perhaps the most important of all manufacturing sectors was given a second chance. And so at a critical time the federal government did what it does best -- protect the interests of all Americans, including workers. Here is an historical account of what happened, taken from an upcoming 2nd edition of my The Automobile and American Life book.
The Great Recession, the G.M. and Chrysler Bankruptcies of 2007-2009,
and Recovery
The Great
Recession, with its foreclosures, personal bankruptcies, lost jobs, and closed automobile
assembly factories, started with a slowing of auto sales after a banner year in
2005, during which almost 17.5 cars and light trucks were sold (see table). Afterwards,
a foreboding trend reappeared, one that the American industry had experienced during
the late 1950s, and the late 1970s and early 1980s -- the remarkable rise in the
sale of “pure” imports. These vehicles
were not cars made at the transplants, and they increased significantly from 19.7
percent in 2005 to 26.1 percent in 2008.72 Concurrently, credit tightened. Since
some 90% of all automobile purchases were made with loans – that development also
contributed to a marked decline in U.S. production.72 $4.00 per gallon gasoline prices also caused a
drop in consumer confidence. It turned out to be a perfect economic storm
directed at a fragile industry. In 2007, prior to the steep downturn, union
pension and healthcare costs as well as post-employment benefits were addressed
with the formation of a voluntary trust employee benefits association that also
provided for a lower entry wage of $14.20 per hour for up to 20% of the UAW
workforce. But it was too little a cost-saving measure, too late.
By the end of 2008
the Detroit Three were running out of cash and G.M. and Chrysler faced imminent
bankruptcy. The outgoing Bush administration, led by Treasury Secretary Hank
Paulson, responded with a Troubled Asset Relief Program (TARP) loan. A stopgap,
it kept the threatened firms alive, and acted as an important bridge between the
outgoing Bush and incoming Obama administrations. In the meantime, massive job
losses followed. Automobile assembly plants employment dropped from 185,800 to
123,400 and in parts plants from 607,710 to 413, 500. By 2009 only 10.6 million
American-made units were sold, and recovery to 2005 levels did not occur until
2015.
After President
Obama took office, a taskforce at the Department of Treasury was created with
bankers Steven Rattner and Ron Bloom emerging as its leaders. Congress proved as
ineffectual as auto industry leaders in reaching a compromise agreement. Conservatives
wanted the industry – and especially organized labor – to pay a price for a
government bailout, while liberal legislators favored a more lenient approach
given the huge economic and social ramifications if the industry were to fail. In
the end, both G.M. and Chrysler went through managed bankruptcies. G.M. was forced
into bankruptcy with a 61% taxpayer ownership. G.M. also had a new chairman and
four new board members who were appointed by the federal government. To allay
consumer fears, the government backed warranties and President Obama created
the Cash–for-Clunkers program to stimulate demand. Ed Whitacre, formerly at
AT&T, was persuaded to come out of retirement to head G.M., followed 9
months later by Dan Akerson, formerly CEO at Nextel and then the Carlyle Group.
Ford, securing a credit line during the
first half of 2008, avoided government intervention in their business
operations, and since 2011 has recovered nicely with annual profits ranging
between $6.2 and $8.3 billion. Chrysler recovered but now is under the control
of the Italian car company, Fiat.
G.M. has endured
several crises since 2009, including one involving a faulty ignition switch. It thrives, in part because of its operations
in China, where its Buicks are preferred as desirable vehicles, along with Audis
and Porsches. Geographically, the post-Great
Recession U.S. industry now has two areas of concentration within the I-65 and
I-75 corridor. Above US 30, cutting east
to west between Ohio, Indiana, and Illinois, the auto assembly scene is
dominated by the Detroit Three and suppliers; below it are the transplants with
their headquarters in Japan, Korea, and Germany.
From the
perspective of organized labor, the UAW is no longer what it once was, neither
in the sense of its power during the 1950s or its obvious weaknesses after the
mid-1970s. In 2015 industry analysts Joel
Cutcher-Gershenfeld, Dan Brooks, and Martin Mulloy concluded, “The UAW
transitioned from a union that primarily threatens to withhold labor to one
that primarily enables work. Union brings expertise to discussions of quality,
safety, productive and preventative maintenance, workforce development, and
team based operations.”73 In sum, the UAW has experienced a new role and resurgence
by finding purpose in a new business environment.
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