The American Automobile Industry: The Most Enduring Obama Legacy and the 2009 Bailout

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.