In praising his bailouts of Chrysler and General Motors, President Barack Obama said
recently in Toledo, Ohio, “I refused to walk away from those workers. I bet on those workers.”
But “those workers” he bet on were largely those who belonged to the United Auto Workers (UAW). The Obama bailout specifically bet against non-UAW workers in manufacturing plants and at auto dealers. The end result was that the bailout actually killed thousands more jobs than it saved.
The administration moved heaven and earth to save the jobs and generous benefits of General Motors and Chrysler workers who belonged to the UAW, ripping up the contracts of bondholders and secured creditors — including middle-class retirees and teachers and police officers in state pension plans
— to give the UAW an enlarged stake in the new companies.
“As a result,” notes
Amy Payne of The Heritage Foundation, “even after the reorganization, GM still has higher labor costs ($56 an hour) than any of its foreign-based competitors.”
But as shown by the reporting of the Daily Caller’s Matthew Boyle, non-UAW workers affected by the bankruptcies were not so lucky. As Boyle writes
, emails indicate direct intervention by the Obama Treasury Department to give UAW workers preferential treatment at one-time GM subsidiary Delphi, which manufactures auto parts. UAW workers there were given full pension benefits, while nonunion workers had their retirement plans slashed by as much as 70 percent.
But it wasn’t just Delphi workers who were treated as “less equal” than their union counterparts. At the nation’s auto dealers, about 100,000 mostly blue-collar jobs — a number approaching the total workforce of GM and Chrysler, according to the Cleveland Plain Dealer
— were put at risk by “Team Auto,” the Obama administration’s auto-bailout task force, which insisted on extraordinarily rapid closures of auto dealerships during the government-organized bankruptcy proceedings.
At the behest of Team Auto, GM and Chrysler closed more than 2,000 dealerships — leaving more than 100,000 dealer employees scrambling for new jobs, pensions and healthcare — within a time span of a few months.
By contrast, Mitt Romney’s old private-equity firm Bain Capital has taken heat from Obama supporters for laying off 750 workers at one Kansas City steel plant nearly eight years
after it purchased the plant’s parent company.
In his acclaimed new book "Bailout
" by Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program (TARP), shows clearly that the Obama administration pushed for many more closures of dealerships than bankruptcy and restructuring experts deemed necessary.
In "Bailout" — other aspects of which have been praised by the liberal Huffington Post — Barofsky paints a devastating portrait of the Obama administration’s arbitrary dealer closures.
Contrary to the administration’s claim that the dealer closings were entirely GM’s and Chrysler’s decisions, Barofsky writes that Obama’s “auto team had pressured the companies to close the dealerships” more rapidly and in greater numbers than the firms had wished.
Barofsky concludes that “relatively little thought had gone into Treasury’s determination that the dealership closings had to be immediate.” He reports that after “interviewing many of the same experts Treasury had consulted,” his group of auditors “found remarkably little support for the auto team’s determination that the viability of GM and Chrysler depended on their closing so many dealerships so quickly.”
The dealer closings weren’t really a matter of saving taxpayer money on the bailout. Dealerships, which basically have franchises from automakers to sell vehicles, impose no direct costs on the car manufacturers. As Steven Rattner, Obama’s auto-bailout czar, notes in his book "Overhaul
," “auto companies don’t pay their dealers anything directly.”
So why close so many dealerships so quickly? Rattner argues that “every industry expert agreed that having fewer, more productive dealers results in higher total sales and lower marketing expenses for an automaker.”
But, Barofsky writes, although experts agreed that “dealerships should be reduced over time, there was substantive disagreement about where dealers should be closed and how quickly it should be done.”
In particular, he recalls, several experts consulted by his office disputed that any rural dealerships needed to be closed, citing the “distinct advantage that GM and Chrysler had in those areas over foreign competitors.”
Barofsky explains that GM appeared to agree. Initially only 18 percent of the dealership closings it targeted were in rural areas. But “that number jumped dramatically,” he writes, “after Treasury directed it to accelerate the closings, with rural dealerships making up nearly half the dealerships slated for termination.”
Given this evidence, it is correct to argue that many dealers would have fared better if GM and Chrysler had gone through a traditional, court-approved bankruptcy along the lines that Massachusetts Gov. Mitt Romney advocated
in a 2008 New York Times
Op-Ed, rather than through the politicized bankruptcy that Obama’s team put together. At the very least, it would probably have given dealers more time to make arrangements with GM and Chrysler’s competitors, minimizing job losses.
About 500 of the 2,000 dealerships restored their franchises in an appeals process created by bipartisan legislation in Congress. Still, at the 1500 dealerships that were closed, 63,000 workers lost their jobs, according to Hoover Institution Research Fellow Paul Roderick Gregory. Gregory writes
that this totals “about the same as the number of GM manufacturing workers in the U.S.”
Ohio Gov. John Kasich points out that, of the 73,000 jobs created in his state since 2011, only 700 were “direct jobs” in auto manufacturing. PolitiFact, which examines campaign claims, largely backs up
And then there are the jobs not created and businesses not opened because of the shabby treatment of GM’s bondholders and Chrysler’s secured lenders. The Obama administration designed a restructuring that disregarded two centuries of bankruptcy precedent to give disproportionate ownership stakes to the UAW and, in Chrysler’s case, Fiat.
This was such a seismic shift in contract law that it caused a huge drop
in the ranking of the United States in the annual “Index of Economic Freedom.”
There are many victims of the government’s meddling in the auto industry, and their stories need to be told.
Mark Beatty, a former research associate at CEI, contributed to this article.
John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute. He is the author of the book “Eco-Freaks.” Read more reports from John Berlau — Click Here Now.
© 2014 Moneynews. All rights reserved.