Obama’s 100 Days of Auto Bailout
I’ve been asked by several people to comment on Obama’s first 100 days (I’ll put up links later). But no one has asked me to comment specifically on his 100 days of auto bailout. Reading this article, though, made me want to do a post addressing the auto bailout specifically. Thus far, I’d give Obama a A-.
To explain my thinking, let me first remind you of what I said when Obama first inched Chrysler and GM closer to bankruptcy:
Let me start by saying I’m non-plussed by the call for Rick Wagoner’s head. I think Wagoner was making the right moves recently, but he was also responsible for years of inaction. So I’m not sorry to see him gone. In any case, Obama is forcing out the entire board of GM, so Wagoner would have had to go anyway. [ed: this last bit was incorrect–they’ve been changing part of the board membership]
[snip]
Thus far, it’s tough to tell whether this is a good plan or not. As far as Chrysler, they can’t survive alone. So the forced marriage gives it one chance to avoid bankruptcy that otherwise seems inevitable. I don’t think Fiat will take the deal, so I expect Chrysler to enter bankruptcy within the next month.
As for the GM plan, they are finally talking about dealer concessions (which a "quick rinse" bankruptcy would help, too), which was the element that everyone had thus far ignored. And some of this tough love with GM seems to be a logical next step given bond-holders’ intransigence since December. GM had been, thus far, unable to get its bond-holders to accept the losses they had told GM, in November, they would take, so Obama is threatening to use a court to make them do so–followed by UAW concessions.
At the time, I believed this was the right (albeit incredibly painful) decision. I was skeptical that the auto task force could pull off anything viable with Chrysler. Things are still mighty uncertain, just a day before the deadline. But analysts increasingly believe that Chrysler will avoid liquidation, which impresses me.
As far as GM goes, I went to GM’s Tech Center yesterday to test drive the Volt (I’ll do a couple of posts on that on Friday and next week). And while the GM restructuring is, in some ways, even more intractable than the Chrysler one, I came away yesterday believing (for the first time in a long while) that "as goes GM so goes the nation." And–speaking as someone who watched from a close vantage point when Alan Mulally almost immediately provided leadership at Ford in 2006, which largely explains why it has avoided the plight of GM–I got the sense that Fritz Henderson (who replaced Wagoner) was exercising that kind of leadership now at GM.
Finally, don’t forget, Obama’s appointment of Ed Montgomery to focus on making this process less painful for the auto states than it otherwise would be. I plan to do a follow-up on what he’s been doing, but the appointment demonstrated a commitment to help the auto states through this period.
So, thus far, I feel Obama made not only the right decision, but has implemented that decision better than I expected.
Now, the NYT article reminds many of the reasons I believe Steven Rattner is a conflicted asshole who doesn’t know shit about cars. My visit to the Tech Center only reinforced the opinion that task force members still have some things to learn about how the auto industry works.
But when I read this quote from John Dingell, I couldn’t help remember some conversations with the Dingells during the primary and early general election period.
“At this point, the administration is just playing poker,” Mr. Dingell said. “If he gets the damn loans and saves the industry, I guess I won’t be able to complain.”
During the election, they rightly raised very real concerns about whether the Reagan Democrats in Michigan would support Obama–concerns that, if my district caucus was any indication–were really well-founded. As it happened, though, Obama cleaned up in Michigan and convinced Stanley Greenberg the Reagan Demoracts are a thing of the past.
Overall, I give Obama a lower grade than on the auto bailout–the bank bailout needs to be treated more like the auto bailout. The continued shielding of Bush era criminality, both through State Secrets and a distaste for legal accountability, is a real problem. Obama’s done really important things with the environment and he is actually engaging with the rest of the world. And while I’d have liked the stimulus package to be more stimulus and fewer tax cuts, the investments they did make were really sound investments. So it’s a mixed bag.
That said, I am pleasantly surprised with the auto bailout so far.
My concern is how many paupers are built in to the new “rules” about life in a depression. Institutionalizing industry to save it is fine, it means jobs. But how many aren’t going to be saved? I wonder if anyone has done study projecting how many people will live in poverty after we remove the lifelines holding them above water?
EW you are remarkable
EW, can’t wait to hear your thoughts on the Volt, the emphasis of, will lead us out of this bust. I believe that how cars like the Volt go, so goes the nation.
Boy it has been a funky three weeks. Ever since I saw Barney Frank on Charlie Rose, the Chrysler and GM deals have been a different story each day. Barney Frank stated clearly on Rose that he believed the two would avoid bankruptcy.
I agree with your grade. And this assessment:
I just hope the UAW gets some good back-up right now.
How much more of GM paring of product lines can be beneficial to GM or the country? Specifically, isn’t the Saturn plant newer than most GM facilities and while, in my ignorance of things automotive, could be better utilized than just closed (not to mention the effect on the community).
Two questions: is the Saturn PLANT (in Spring Hill) worth keeping?
Yeah, if they don’t go into bankruptcy, they almost certainly will. It’s currently assembling the Chevy Traverse right now, not Saturns.
But if they go into BK, then Spring Hill may have to get sold–it’s collateral on the few secured loans not held by the federal govt.
It appears to me that much of the problem with any restructuring has been the reluctance of the bond holders. A lot of talk about bankruptcy can only help to demonstrate to them the futility of their position.
I really hate Fiat but it looks like that’s the way this thing is going. I just can’t understand why GM and Chrysler don’t merge.
GM and Chrysler merging would be profoundly stupid. They overlap with each other, not complement each other, and if they merged it would take a bad problem (that each has too many dealers) and badly exacerbate it.
Whereas with Fiat, you get new product in Chrysler dealers quickly that competes in a segment that is growing. And you get the infusion of some new technology that Chrysler hasn’t been developing while Cerberus has been sitting on it.
You can’t be a one market car company any more, bc the profits are not in the US anymore. So the Fiat deal gives Chrysler an opportunity to try to make a go at it again.
I disagree. GM/Chrysler could drop GMC, Saturn, Pontiac, probably Buick (although I personally would hate to see that happen), and Chrysler, and sell Hummer to someone in Asia. Cerebrus gets nothing. The bond holders take a bath, say 35 cents on the dollar, all in equity. Whether Chrysler is merged with Fiat or GM it is still going to need dealerships, so those are not going away. Then we are saved from Fiat, which makes cars that are only worsted by Hyundai. And Yugo, if Yugo was still around.
I don’t think we will see Chrylser/Fiat last 2 years under this deal, but we’ll see.
Oh, c’mon. Have you seen a new Fiat on the road in the last 20 years? I have. In the meantime, I’ll pass on the judgement of a British friend who rented a Chrysler Sebring recently: “It looks like a shoe and drives like one.”
I’ve mainly been musing than asking about this, but has Ford had anything to say about its platform-sharing deal with Fiat in Europe, and how that might affect the deal with Chrysler? (The second-gen Ka and New 500 are basically the same vehicle.) On the other hand, the platform is that of the Panda, so I’m not sure if Ford would have any grounds for complaint, even if it gets badged as a Chrysler and not a Fiat.
A corollary is that American observers (who aren’t petrolheads) tend to see Ford/GM through a strictly North American perspective, whereas if you’re a filthy foreigner, you see GM and Ford doing stuff in China and Latin America and Europe, and wondering when all of that work, often highly-regarded and with good sales, gets rolled into the domestic production line.
Not important (except to careful writers) – Marcy, it’s impossible at first to tell how you mean “non-plussed” in your older passage. ‘Nonplussed’ used to mean (and still does) rendered speechless, like being stunned or shocked (but lately has been used to mean the opposite, or to mean unfazed.) It’s usually impossible to tell how anyone uses that word, so it’s best to avoid using it.
Thanks–will keep that in mind.
Thanks ew.
Surely you must realize that if you went to the Tech Center at GM, and were impressed with the showing, that that was built on R&D that must have been in progress for many years, including almost exclusively those years under the despised Ray Waggoner, right?
The point is, a corporation like GM is a lot more complicated than its bottom line in a given quarter, or even a given year, or even a given several years.
In other countries, including both Japan and much of Europe, this is well understood. The Japanese auto industry took literally decades to build up the quality of its products and, equally critically, its reputation for excellence, before it could overtake the American auto industry. Airbus would never have achieved its competitive status with Boeing without strong, long term support from European countries.
What troubles me about Obama’s approach to the auto industry is how willing he seemed to be just to junk the American auto industry because it has taken it a long time to become competitive once more with Japanese manufacturers. Certainly the American auto industry has begun to catch up with the Japanese on matters of reliability, though they still lag behind. Today, the autos they sell are as reliable as the models sold by Japanese firms just a few years back, which were hailed as superb; we are, a lot of us, proudly driving older Japanese cars not nearly as reliable as those now manufactured by American firms.
Of course, as a consumer, one still wants to buy the most reliable cars on the market now – if the price is right. And on average most Japanese cars are still somewhat more reliable than American cars. But it is an open question whether the premium most people now pay for the often marginal extra reliability of Japanese cars is worth it.
Much of the decision to go for a Japanese car nowadays may well be based more on general reputation than on anything else. And reputation can be a very elusive thing, and exceedingly difficult to turn around. It may well be that with a few more years of extended life, American automakers can both further improve their already improved product, and, perhaps more importantly, improve their reputation among American consumers.
There’s a very reasonable chance that if the American auto industry is given a second (or third) chance, it can indeed be turned around. Maybe Obama’s approach will in the end allow for that possibility.
But what does strike me as true is that it will be very hard indeed to bring the auto industry back to life if it is simply left to die. And if we are going to spend trillions of dollars to keep a bank industry alive whose only product seems to be wealth for the already disgusting wealthy and near economic collapse for the rest of us, we might spare a few tens of billions to try to keep alive an industry that has done so much for many Americans over the last century, and has a real fighting chance of succeeding once again, if it is only extended a helping hand.
I guess you didn’t read my ambivalent comments about Wagoner and frankly, I think you’ve got a funny idea of how research–versus programs–happen in the US auto industry. The research has never been the problem. The problem has been the willingness of the top management to develop that research into a product.
Also, I’m not sure where you get the impression that, “he seemed to be just to junk the American auto industry.” What evidence do you have for that statement? The whole point of this post is that he has been doing incredible work to give Chrysler a chance (a company which has not reached the same kind of reliability as the Japanese), and has always shown a commitment to keep GM (which has been improving quality).
You also seem to treat the American auto industry (Ford, GM, and Chrysler, along with new start ups like Tesla) as one entity. Last I checked, Ford was exceeding expectations (which goes back to my Mulally point), and GM was never going to be “left to die.” Chrysler is–as it should be–a different matter.
As a reminder, in 1975 or 1976 Ford Motors reported a quarterly loss of $200 million, a staggering figure for that time. (We are condemned to listen to history teachers.)
heh heh, now we know what the Secret Mission was…
Yeah, ew, did you find the mystical supercharged Camaro?
Anyways, you probably spoke too soon on this…
Oh yeah. That was dessert.
The WaPo writer who was in our test drive got to drive one (though the V6, not the V8 we drove) back to DC.
See? THAT’S the car GM should be building. I’ve heard that Joe Biden owns a ’60s-vintage Corvette, that gives me hope.
is this real? It’s about time they thought of this…
If Motor Trend was right, Chevrolet had a 550 HP supercharged Camaro ready to duel with the Ford Mustang Shelby GT500, but money woes and political correctness put it on the backburner.
Great post Marci, I’ve been a bodyman for nearly 40 years and watched firsthand the evolution of foreign cars from the junk they once were to today always wondering why our car manufacturers let this happen and I can tell you that you have nailed it. Thank you.