Washington 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.
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 Economy.com. “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.