Archive for Tuesday, March 31, 2009

Obama tougher on auto industry than banks

March 31, 2009


— President Barack Obama is dealing with the beleaguered auto industry more sternly than he has with bailed-out banks and insurers as he takes the nation another step into uncharted government regulation of industry.

The decision could leave a lasting mark on his presidency, for good or for bad, in ways reminiscent of Ronald Reagan’s battle with air traffic controllers or Harry Truman’s showdown with striking steelworkers.

By now, it may seem obvious that the government is playing major roles in running huge corporations, including banks, insurance companies and automakers receiving billions of dollars in federal aid. Yet the message is still hard to absorb by many unions, retailers and, most visibly, executives who took big bonuses or chartered jets to congressional hearings where they sought the money to keep their firms afloat.

The Obama administration, perhaps reflecting public sentiment outside Michigan, has shown less patience with the auto industry than with other troubled sectors.

General Motors’ chief executive, Richard Wagoner, must go, the administration said, workers must make concessions and Chrysler must pursue a merger with Italian automaker Fiat SpA if more government help is to be considered.

The administration is tightening its oversight of bailed-out financial companies, too, but it has generally been more lenient in terms of time, personnel and other factors. Nor has Obama demanded that financial-sector workers and unions make more “painful concessions,” although that sector is far less unionized than the auto industry.

Union contracts, it appears, are not as sacrosanct in the administration’s opinion as the one it has left intact at AIG, which provided politically radioactive retention bonuses to employees.

Possible bankruptcy

The president went farther down the road of federal intervention Monday. He embraced possible short-term bankruptcy and reorganization by Chrysler and GM (Ford is not involved), an idea he had rejected as president-elect in November. Obama even advanced the novel idea of having the government back new-car warranties issued by both GM and Chrysler to reassure buyers nervous about taking a chance on those companies.

“I know that when people even hear the word ’bankruptcy’ it can be a bit unsettling,” Obama said in his remarks at the White House.

Indeed. But many other events, including plunging job rates and savings accounts, have unsettled Americans even more.

Automakers brought much of this woe on themselves, resisting changes over the years that might have made them more efficient and competitive. Now they suffer from Americans’ resentment of bailing out big companies, and from the perception that the once-mighty auto industry is less vital to the nation’s well-being than are financial institutions.

“The banking sector is much more important to the economy now,” said Nariman Behravesh, chief economist for IHS Global Insight. The public, he said, “is suffering from bailout fatigue.”

These factors give Obama more leeway to be tough on the auto industry. As shocking as it would be to see a corporate icon like General Motors file for bankruptcy, it would do less damage to the overall economy than would the collapse of another major financial institution, several economists said.

“If they think a firm is less important to the economy, the less help they’re willing to provide,” said Mark Zandi, chief economist at Moody’s “They are preparing for the possibility of bankruptcy, and sort of walling off Chrysler and GM, to keep them from being a larger systemic risk.”

The old saying, “as GM goes, so goes the economy,” Zandi said, “no longer holds.”

Risks for Obama

Flexing the White House’s muscle so forcefully carries obvious risks. If the auto companies continue to wither, Obama’s actions might look unwise at best, and harmful at worst.

Reagan became a hero to conservatives, and a tyrant to labor union activists, when he effectively dismantled the air traffic controllers’ union following a strike in 1981. A generation earlier, the Supreme Court had ruled that Truman overstepped his authority in 1952 when he nationalized the U.S. steel industry hours before workers planned to strike.

Other presidential showdowns with major industries included Franklin Roosevelt’s actions against striking coal workers in 1942.

Depending on how things unspool in the next several months, Obama’s dealings with two major car manufacturers could make those earlier events look almost minor.

In sheer political terms, they also might give Republicans a chance to pull Michigan into their column in a 2012 re-election bid by Obama. Labor unions are a key part of the Democratic Party’s base, and auto workers feel they have made deep concessions in the benefits they had gained through collective bargaining. Their unwillingness to go further, however, is one reason the U.S. industry has not been more competitive.

Obama tried to soften the workers’ anger Monday, first noting that Michigan suffers the nation’s highest unemployment rate, with more than one in 10 out of work.

“The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed,” he said. “And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations. Rather, it is a failure of leadership, from Washington to Detroit.”

The politics of a troubled auto industry are murky enough to divide the Republican Party, at least for now.

“This is a marked departure from the past, truly breathtaking, and should send a chill through all Americans who believe in free enterprise,” GOP Sen. Bob Corker of Tennessee said of Obama’s actions.

Rep. Darrell Issa, R-Calif., had the opposite view. Obama “has struck the right chord in seeking balance between supporting the American auto industry and calling for a much-needed restructuring of GM and Chrysler,” he said.


JS82 9 years ago

The Federal Government running auto companies is a recipe for an even greater disaster than private enterprise. The companies need to go through bankruptcy so they can be reorganized and get the costs back in line so they can produce a vehicle and make a profit. Spending money to keep a broken company running is like paying off one credit card with another credit card. It is crazy to think that this will work it just prolongs the inevitable.

madameX 9 years ago

Do you people actually believe that the government wants to be be in charge of any auto company for ever and ever? I agree that in the long run it might be better to just let them file for bankruptcy and undergo the re-organization that goes along with that, but I also see that that course of action has its own set of risks which is why I'm not all that shocked that the Obama administration isn't doing it. My impression is more that they're trying to get these companies into something that functions a lot like bankruptcy without actually calling it that and freaking out shareholders.

However, this idea that Obama thinks the best thing for all parties involved is for the government to be the new boss of all business is just stupid. He doesn't want to be running GM any more than any of you want him to, what he wants is some measure of control over the company's success or failure as long as they have millions or billions or however many taxpayer dollars it is they have.

Of course, if it doesn't fit with the preconceived "Obama=Stalin" idea that so many people seem to have, said people are not at all likely to believe it, so I fully expect to be mocked for not buying the right-wing hype.

beawolf 9 years ago

MadamX says:

"However, this idea that Obama thinks the best thing for all parties involved is for the government to be the new boss of all business is just stupid."....

Unfortunately Madam, most of the comments posted here are just that ...stupid. Many don't understand, some are trying to be cute, others are politically blinded and some just are not that intelligent.

I used to read these more frequently, but it's usually the same old crowd with the same old regurgitated drivel. Occasionally I find that rare nugget where constructive ideas are reasonably discussed, but they are few and far between.

staff04 9 years ago

nancy, since they became active in making political donations, they have only given slightly more to dems than repubs. It isn't uncommon at all for trends in political donations to go to the direction of the majority. Your 80% claim is totally off base--in fact, which I know you often choose not to bother with, it's more like 51-49% to favor Dems.

staff04 9 years ago

Tom, surely you are embarrassed by your consistent intellectual said that donations went 80% to Dems. (

Complete lie. I know how to use opensecrets too, as well as the FEC filings they compile. You know, I know that I am much younger than you, but I think you are way out of your league when trying to debate me. Call it arrogance of youth, or whatever else you can think of, but you sure do present a huge target.

2008 cycle was 69% to Dems, 31% to Republicans. You wonder why you get laughed at here, there it is, there's your rebuttal, and there's yet another strike against your credibility.

Flap Doodle 9 years ago

What industry will be the target of Barry's outrage next week? Stay tuned while Axelrod spins the Wheel of Misfortune...

Tom McCune 9 years ago

OMG. Fiat-Chrysler. That's not a corporate merger. That's a collision between two garbage trucks.

staff04 9 years ago

"What say you also Mr. Insider, about the two figures to Senator Dodd (D) CT and then candidate Barack Obama?"

Same thing I'd say about the nearly $300K that went to George Bush and John McCain over the years--seems a little out of line, but as long as the law allows it that is the system we play in. I DO think it is a 1st amendment issue. I agree with many constitutional scholars that money in politics is speech. Maybe that needs to be changed--I dunno.

I find opensecrets and the FEC websites to be sufficient and fair sources, regarding that question. I'm likely looking at the same figures you are, I am just using them in an intellectually honest fashion.

Tom, I've nowhere here tried to justify or minimize the potential problems with some of this giving--I merely called you out for "fudging" the stats to serve your argument. Not going to say that it surprises me, nor am I going to fall into your attempts to shift my attention from your lies.

staff04 9 years ago

"would not want to hear what I really have to say."

You're right Tom, I get plenty of unresearched, unsubstantiated, unintelligent tales from you here on this more civil forum--I'll stick with that for now.

jafs 9 years ago


Money is not speech.

That Supreme Court decision is highly flawed, in my opinion, and has led to the kind of "best government money can buy" that we have today.

Rich people are as free to speak with politicians as poor ones without giving them any money.

And, just for fun, if money is speech, then prostitution would simply be talking to someone to get them to sleep with you.

staff04 9 years ago

jafs, at least you were smart enough, unlike Tom, to follow your opinion with that disclaimer. I didn't say it couldn't use reform, but I do actually find myself in agreement with the Supremes on most issues of true constitutionality.

FWIW, Federal Law generally agrees with you on prostitution (with obvious exception to sex-slavery and kiddies), but for the most part that racket is governed by the states.

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