AUGUST 30, 2012
Paul Ryan is getting all kinds of grief today for misleading the public about a General Motors plant in Janesville, Wisconsin. He deserves it. If you don't believe me, read Dylan Matthews and Greg Sargent of the Washington Post, who have done the legwork to get the full story of how and why the plant closed.
But I also wonder: Why does the Ryan campaign want to make the auto industry a focus of attention? I'm asking because, if I’m sitting at Obama headquarters in Chicago right now, I’m not angry that Ryan started talking about GM. I’m positively thrilled.
Some history, for those who have forgotten: In late 2008, with Wall Street in crisis and the economy grinding to a halt, General Motors and Chrysler revealed they were on the brink of collapse. They'd been struggling for years, paying the price for poor decisions by management and labor, but now things were much worse: They simply didn’t have the money to keep operating. In normal times, the carmakers could have filed for bankruptcy, obtained financing to reorganize and renegotiate contracts, and then emerged as leaner, stronger companies. But these were not normal times. The financial industry was in no position to offer that kind of assistance. Had the companies gone into bankruptcy, the likely result would have been liquidation.
And that would have been catastrophic. Closure of Chrysler and General Motors would have forced many of their suppliers to shut down. The economic shock wave would have rippled through the Midwest and quite possibly destroyed Ford, a relatively healthy company that nevertheless depended on the same firms to produce parts. Estimates from the Center for Automotive Research suggested that the cumulative job losses could have reached three million. That was the worst-case scenario, but even substantially fewer job losses would have been devastating.
If you don’t live in the Midwest, you might not grasp just how critical the auto industry is to the region. So let me use an analogy that will resonate with my readers in and around Washington, D.C.
Imagine the federal government went out of business, shuttering virtually every agency and putting their employees out of work. Now think of all the companies in the Washington area whose businesses consist of selling goods and services to the agencies and their workers—the grocery stores, the I.T. firms, the contractors, the mom-and-pop dry cleaners. They’d go out of business, too. Pretty soon the city would be an economic Beirut.
By 2008 and 2009, parts of the midwest already looked that way, because the American auto companies had been closing their plants for years. If you've been to Flint, or if you've seen Roger and Me, then you know what I'm talking about. Other communities, like Lansing and the northern Detroit suburbs, had avoided that fate. A total collapse of Chrysler and GM would have crushed them, too.
In the waning days of his presidency, President Bush had the good sense to extend the companies a short-term, emergency loan. That put the onus on President Obama, still fresh on the job, to decide their fate. He didn’t give the companies a handout: He insisted they go through bankruptcy, renegotiate their contracts, clean out management, and downsize to an enterprise they could realistically support. Basically, he forced them to do what they would have done in normal economic times. Plenty of skeptics (including me!) worried the treatment was too harsh. But the companies complied and the results have been as good as anybody might rightly have hoped.
Since Obama made his decision, the unemployment rate in the auto states has declined steadily and substantially. (See graph below.) A big reason is that the auto companies, profitable again, have stopped firing and started hiring. It remains to be seen just how strong Chrysler and GM can become. They've had some hiccups and I wouldn't be surprised if, someday, Chrysler disappears into the Italian conglomerate that purchased it. But GM's plants are frequently operating at or above capacity, and they happen to make some very good cars. (I drive a 2010 Chevy, so I can attest to this personally.)
But the future performance of the companies is almost beside the point. The story of the auto bailout is a story of government saving the Midwest from oblivion. No less important, it is a story of leadership.
If you’ve followed this saga, you know that Romney has said multiple, conflicting things about the auto industry rescue. Last I heard, he was saying that Detroit carmakers survived because Obama took Romney’s advice and forced them into bankruptcy. At the same time, Romney has said he opposed putting taxpayer money at risk.
That, friends, is a nonsensical position: The whole point of the rescue was to supply the industry with taxpayer funds, because the financial industry wouldn’t, or couldn’t, provide money of its own. But it really doesn’t matter what Romney is saying now or what he said six months ago or what he said last year. The point is that he said different things at each of those moments, in a transparent effort to win the Republican primaries by pleasing angry conservatives without totally alienating the midwest.
The contrast with Obama is striking. The auto rescue may be the single best test of Obama's leadership on domestic policy because it was the one instance in which he didn't need Congress to act. He got mixed advice from his economic advisers, who were wary of another shock to the economic system but reluctant to prop up the ailing companies, particularly Chrysler. He also got mixed advice from his political advisers, who were aware of labor's longstanding support but were looking at poll numbers that suggested the public, already weary of bailouts, was in no mood for another industry rescue. Obama approved it anyway.
Obama got plenty wrong in his first term. But he got the Detroit rescue very, very right. So, yes, let’s talk about the auto industry. Let’s talk about it a lot.
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