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Posted by on Jun 7, 2011 in Economy, Politics | 16 comments

What Do Republicans Have Against Detroit?


PRESIDENT OBAMA AT A TOLEDO JEEP PLANT LAST WEEK

The saga of Detroit’s Big Two and a Half automakers over the past decade has been a riches to rags to riches story that Republicans, as has so often been the case, are finding reason to criticize and not celebrate although it is a rare bright spot amidst economic gloom.

Long story short, General Motors, Ford and Chrysler were running on fumes at the start of the new millennium, making lots of money from manufacturing boring, fuel inefficient and uncompetitive cars. Reality in the form of rising fuel costs and Japanese, German and Korean automakers who grabbed the competitive edge eventually caught up to them, and by 2008 the once proud troika was on its knees.

Enter a necessary evil in the form of a taxpayer-funded bailout of GM and Chrysler. (Ford, while on the ropes, believed it could survive without Washington’s direct help.) Like many people, I struggled with the question of whether the automakers should be allowed to die of their own self-inflicted wounds, but eventually came around to the view that far too many jobs were at stake to allow that to happen.

The two-step $80 billion bailout, which was intended to allow the automakers to retool their factory to produce more fuel-efficient vehicles, began at the end of George Bush’s second term and culminated during the first year of Barack Obama’s presidency. It was supported by most Democrats and opposed by most Republicans, including an especially patriotic bloc of senators from Southern states where Japanese and Korean automakers have assembly plants.

Fast forward two years: Bankruptcy is a memory, the Treasury will have been repaid all but $14 billion of bailout monies well ahead of schedule, all three automakers are turning profits for the first time since 2004, all three are ramping up production and all three are hiring.

This, however, has not assuaged Republicans, whose message is that the Obama administration is too damned friend to unions — in this case the very unions that agreed to major concessions as part of the bailout and were major players in the automakers’ recovery.

Obama touted the recovery during a tour last week of a Chrysler-Fiat assembly plant in Toledo that makes Jeep Wranglers, which prompted House Majority Leader John Boehner of Ohio to harrumph that the bailout and the industry’s revival is “nothing to celebrate.”

Boehner said that Obama should be using Ford as a model since it turned down bailout money. What he conveniently failed to note was that Ford supported the bailouts because had GM and Chrysler died, so would many of the suppliers that it relies on. Ford did lay off 49,000 workers to stay afloat, and those workers cost taxpayers nearly $600 million in unemployment compensation.

Then there is Mitt Romney, who probably is the only Republican presidential wannabe who has even a slim chance of beating Obama in 2012. Despite being from Michigan, he opposed the bailout and will have a lot of explaining — or more likely flip-flopping — to do when he visits Michigan and other states were automaker is a major part of the economy.

This Detroit bashing begs a question: Why is the GOP insistent on opposing the stuff that the Obama administration gets right and of which most voters approve?

It’s a combination of spending too much time in its own echo chamber, being out of touch with Main Street while beholden to Wall Street, being against anything and everything that doesn’t screw poor people and women, and having to contend with a president who is more popular than his policies.

Photography by Mandel Nagan

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Copyright 2011 The Moderate Voice
  • superdestroyer

    The Republicans had many good reasons

    Michigan is a blue state that has been hostile to Republicans for decades. Why help a state that is so hostile to conservative principles.

    The UAW gives 100% of its money and support to the Democrats.

    The bailout deal screwed over the stockholders and basically gave ownership of the company to the unions.

    The bailout deal allowed the government to decide which dealers could stay in business and which would close. This was done with the idea of making the price of cars to go up.

    The government gave money to people to purchase new cars and shifted demand forward. When the free government money ended, sales collapsed.

    However, it makes sense that progressives would love the idea of central industrial planning and having the government pick the winners and losers in life.

  • sd:

    And worst of all – the absolute pits — is that hundreds of thousands of jobs were saved, including executive office positions that more likely than not were held by Republicans, and a state that the GOP might have turned red in the foreseeable future because of the overall economic malaise is now most assuredly blue for the longer term.

    Yes, this is smart . . . no, make that brilliant, long-term strategizing.

    Anyhow, thank you for helping make my point.

  • VeratheGun

    You know what Republicans really hate? That it actually worked.

    That Obama and his team had the guts and brains to make a politically hazardous call, and that it was a success (*cough* Osama*cough*).

    I am not sure anyone who lives outside the Midwest could grasp how utterly devastating it would have been to allow these companies to go under, without any government assistance.

    If even Chrysler, the smallest and weakest of the American automakers had gone under, it would have dragged GM and Ford down, along with hundreds of suppliers. An instantaneous bloodbath, if you will.

    The Right will continue its spiteful rhetoric against Detroit and how “picking winners and losers” is not the government’s role, though Bob Corker has been notably absent from the public stage, of late. And the Obama administration has proven that limited, smart government can make a huge difference in the ordinary lives of its citizens.

    The automakers are hiring, profits are being made, and disaster averted. Pretty good results for a fraction of the money spent on the banks, the TRUE culprits of the economic downturn.

    American automakers have their own sins to atone for, but blowing up the economy is not one of them. The BANKS caused the economic crisis, NOT the automakers. Funny how certain people have to be continually reminded of this.

  • “that hundreds of thousands of jobs were saved”
    “utterly devastating it would have been to allow these companies to go under, without any government assistance.”

    There’s a common assumption that bankruptcy=death. Maybe you’re forgetting how KMart declared bankruptcy, then bought out Sears 6 months later.

    The bailouts were made to save the unions, not the companies.

  • Professor:
    Elaborate, please.

  • SteveinCH

    How about this

    http://online.wsj.com/article/SB10001424052702303745304576361663907855834.html

    Basically, we lost tens of billions of dollars on the auto bailout that we didn’t need to lose. A package was put together that favored unions at the expense of bondholders and at the expense of US bankruptcy laws and precedents.

    It’s not about hating Detroit, at least for me. The auto bailout was a bad deal for taxpayers. That’s it full stop. If it had been any other company in the same situation, I would have had the same point of view.

  • DLS

    The title of the article starting this thread is misleading. The public (many liberals and Democrats, including union autoworkers and other GM (and Chrysler) employees, in Detroit metro as I heard a number of times on radio stations — I lived there from mid 2008 to near the end of 2009) was against a bailout in principle as well as what was observed then as before, in practice. Had there not been a bank bailout first (which had aroused resentment among those people as among everybody else) and a view toward saving (union Dem) jobs and also acting as many said to prevent what would have been a worse economic and industrial fall, which many understood, the opposition would have been stronger.

    Conservative critics were and remain convinced it also was political rewarding (payback) of the union members for voting extra-reliably and in greater numbers, Democratic. Plus had he defied the unions and their wishes, what would it have done not only to blue Michigan and other directly affected parties, but also for any prospect (later deferred, which liberals noted along with, say, gays-in-the-military and immigration “reform”) for union boosting and padding. (As it is, “card check” is stalled, too, though lately we’ve seen with the horrid Labor court misuse to force Boeing to perform work where some pro-union feds want.)

    Now had he opposed the bailout then, there wouldn’t have been that much criticism other than from the Usual Suspects. Had he been faced with this situation now, the Left would be calling him a traitor, a conservative, even an emerging Republican if he vetoed the federal bailout (and fed-managed bankruptcy and the related transformation of the company[ies]).

    Just a note, a final note: Normally, bankruptcy is a way for those companies who are backward and in an impossible situation to continue (they’ll lose money and eventually go bankrupt even if not done “strategically,” earlier). But in this case, the bankrupt company and industry-salvaging and modernizing legend, Wilbur Ross, disagreed when people said this would be so for GM and for Chrysler. The effect of bankruptcies of these would affect the entire parts supply complex, not just the two Detroit companies, and this threatened to affect other automakers here, too, and could cause the auto industry here in the States to exist no more.

    Do you remember? It added to the weight in favor of the bailout.

    http://www.cnbc.com/id/27723244/Wilbur_Ross_Allowing_GM_Bankruptcy_a_Wrong_Idea

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4fkXMgMVIxM

  • DaGoat

    Agree with the Prof on this one. Declaring bankruptcy doesn’t mean the company disappears, in fact GM did declare bankruptcy anyway despite the bailout. The difference was that Obama was able to define the terms of the bankruptcy instead of a bankruptcy judge, screwing bondholders and benefiting the UAW. Gee I wonder why he did that.

    Back to ProfElwood’s point, many major companies that have declared bankruptcy are still around, including UAL, Texaco, etc. Of course other companies have gone bankrupt and collapsed, in my opinion usually deservedly so (Enron, etc). I believe the biggest factor for Obama’s intervention was that a traditional bankruptcy would have damaged the union considerably, possibly voiding all pre-existing union contracts. Obama instead was able to strong-arm a more union-friendly settlement, turning upside-down the traditional method of placing bondholders (many of whom were “mom-and-pop” investors) first in line.

  • VeratheGun

    DaGoat: There was NO MONEY for bankruptcy. NONE. GM didn’t even have the funds to see itself through a traditional bankruptcy and if you recall, no one was lending money at that time, and certainly not to an automaker in order for it to DECLARE BANKRUPTCY! No, GM would have shut the doors and been auctioned off piecemeal to the Chinese had the government not intervened.

    Secondly, the majority of the GM bondholders were NOT “mom-and-pop” investors. The majority of the bond holders were hedge funds and banks, the very people who brought the country to its knees. From WSJ, 05/28/2009:

    GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers.

    NOT majority “mom and pop” investors. Don’t make stuff up. It was largely institutional investors who held this debt, and they bought it heavily discounted, hoping to get bailed out by the US gov’t at 100% of the dollar amount, even though they themselves paid far, far less.

    The Chrysler bankruptcy was a very different situation, with most of the debt SECURED. In that case, the bondholders (see above, banks, and corporate raiders who bought the debt heavily discounted, were screaming to be first in line to be reimbursed, at 100%, even if they bought the debt for 5 cents on the dollar). A bailout on top of a bailout, if you will. The bankruptcy judge nixed this proposal, as did the US SUPREME COURT. It was in the better interests of the nation to create the VEBA and preserve the millions of jobs that would have disappeared, otherwise.

    You DO NOT know more about this than I do. You don’t. I lived it. I know people who were in the room when these decisions were made. I know people who negotiated with Stephen Rattner, and took phone conferences with Obama, during the process.

    The automakers were dying, and Wall Street was trying to make a buck off the corpses. Well, Obama didn’t let that happen. Union members are real people, hundreds of thousands of real people, who make maybe $50,000-80,000 a year doing very hard work. And the Right would rather they all went out of work and on the dole to the tune of billions of dollars in lost wages, destroyed home values and the gutting of the American industrial backbone, rather than extend short term help.

    There is no other country on Earth that would allow their auto industry to die. Not one–and don’t count Sweden, because Saab was owned by GM at the time. Someone who cared about people, who cared about the long term viability of our country, could see that what happened was the most sensible, prudent course to take.

  • “Someone who cared about people, who cared about the long term viability of our country, could see that what happened was the most sensible, prudent course to take.”

    Thank you, Vera, for bringing some clarity to the discussion.

    Was the bailout skewed in favor of pro-Democratic unions? Yes. But was there an element of altruism? Absolutely, yet that gets lost in the Great Partisan Mash-Up.

  • rudi

    Ford didn’t go the bailout route because a controlling interest is still owned by the Ford family. Any US bailout of Ford would have meant the Ford family would relinquish it’s control over it’s special stock.

    To all the Wingnuts, Reagan won two elections with Reagan union Democrats. The current union hating Medicare killing crowd is pushing the Reagan Democrats back to the Democrats.

    http://en.wikipedia.org/wiki/Reagan_Democrat

    Reagan Democrat is an American political term used by political analysts to denote traditionally Democratic voters, especially white working-class Northerners, who defected from their party to support Republican President Ronald Reagan in both the 1980 and 1984 elections. It is also used to refer to the smaller but still substantial number of Democrats who voted for George H. W. Bush in the 1988 election.

    The work of Democratic pollster Stan Greenberg is a classic study of Reagan Democrats. Greenberg analyzed white ethnic voters (largely unionized auto workers) in Macomb County, Michigan, just north of Detroit. The county voted 63 percent for John F. Kennedy in 1960, but 66 percent for Reagan in 1980. He concluded that “Reagan Democrats” no longer saw Democrats as champions of their working class aspirations, but instead saw them as working primarily for the benefit of others: the very poor, feminists, the unemployed, African Americans, Latinos, and other groups. In addition, Reagan Democrats enjoyed gains during the period of economic prosperity that coincided with the Reagan administration following the “malaise” of the Carter administration. They also supported Reagan’s strong stance on national security and opposed the 1980s Democratic Party on such issues as pornography, crime, and taxes.[1]

    Greenberg periodically revisited the voters of Macomb County as a barometer of public opinion until he conducted a 2008 exit poll that found “nearly 60 percent” of Macomb County voters were “‘comfortable’ with Mr. Obama,” drawing the conclusion that Macomb County had “become normal and uninteresting” and “illustrates America’s evolving relationship with race.” As such, Greenberg stated in an op-ed for the New York Times “I’m finished with the Reagan Democrats of Macomb County in suburban Detroit after making a career of spotlighting their middle-class anger and frustrations about race and Democratic politicians.”.[2]

    Neither side will win without the Macomb County Democrats.

    http://www.greenbergresearch.com/index.php?ID=2286

    By the end of September, using a renewed focus and sharp comparative ads on outsourcing and jobs while presenting a strong case that he was qualified to be Commander-in-Chief, Obama had largely consolidated the once-wavering blue-collar Democrats of Macomb. In a survey of voters, Obama trailed McCain by just one point (43 to 44 percent), putting himself on the path to claiming Michigan’s 17 important electoral votes. In the end, Obama won Macomb County, 53-45 percent and Democrats also gained on the local level; they picked up 2 seats in the state legislature in Macomb by promoting an economic plan that will keep jobs in Macomb County by ending special tax breaks for companies that outsource jobs and investing in companies that bring jobs to Michigan instead.

    In Oakland County, the most upscale and educated county in Michigan, Democrats made gains across the board. Oakland is a fast-grown suburb and historically Republican, home to a Republican county executive and all three Congressmen in the Republican Party. But the county has trended Democratic lately, which led many strategists and pundits to label it as “the New Macomb”; winning Oakland would be an event bigger prize for Democrats in 2008. While Kerry got 50 percent of the vote here in 2004, when the numbers came in this year, Obama bested McCain 57 – 42 percent by easily winning independents and vastly outperforming Kerry among white-collar suburbanites.

  • DaGoat

    @Vera

    I did not say the majority of investors were mom-and-pop retail investors and I don’t appreciate your saying I did.

    Neverless, who do you think pension funds benefit and who do you think invests in mutual funds? You seem more interested in making sure speculators weren’t rewarded than in making sure long term holders weren’t harmed. Possibly a multi-tier system could have been arranged on the bonds to protect long term holders. Maybe if an actual judge had been involved instead of Judge Obama that might have happened.

    Your claim that China would have bought out GM sounds like wild speculation.

    I have been following GM for years and the possible approaching bankruptcy was not something new. Even at the time of bankruptcy they had billions in the bank to pay for legal proceedings, the problem was that had huge debt and were losing billions every month.

    GM was deemed to big to fail which to me means it’s too big, period. Nothing was done to fix that problem. All that has been proven so far is GM can succeed if they rip off their bondholders and accept billions from the government. Most companies would work pretty well with that business model.

  • JSpencer

    “You know what Republicans really hate? That it actually worked.” ~ VTG

    Exactly. Apparently “starve the beast” also applies to the re-booting of good old-fashioned capitalism. Who would have guessed? Nothing surprises me about today’s GOP. Nothing.

  • slamfu

    The conservatives seem to be putting it backwards. The bailout went to a union dominated industry, and therefore must be inherently without merit, motivated only by crass politics to buy votes. Even though it worked out as well as we could have possibly hoped, it was a bad idea in their eyes because of politics and politics alone. That’s kinda disgusting. I mean there is no way to be more clear what the downside would have been had this not happened, gov’t policy averted it, and yet still conservatives won’t say it was a good idea. Good grief.

    And as far as the bondholders getting screwed, I hate to say it but the GM bonds were downgraded to junk in 2005. Anyone who buys unsecured junk bonds just because they are paying 10%, a percentage they only get to if the company is really strapped for cash, is making a risky investment. Anyone who bought those bonds should have known there were significant inherent risks. Especially for a company who at the time was still pushing Hummers with the majority of their advertising dollars when gas was over $3/gallon. That industry needed a wake up call in the biggest way and it got it.

  • VeratheGun

    DaGoat: “I did not say the majority of investors were mom-and-pop retail investors and I don’t appreciate your saying I did.”

    You said …many of whom were “mom-and-pop” investors, when referring to the GM bondholders. This is patently false. There were in fact very, very few small investors holding individual GM or Chrysler bonds at that time. The automakers debt was held in very large part by the biggest banks and hedge funds in the world–the ones that the US government in fact was in the process of bailing out at the time.

    DaGost: “Nevertheless, who do you think pension funds benefit and who do you think invests in mutual funds? You seem more interested in making sure speculators weren’t rewarded than in making sure long term holders weren’t harmed. Possibly a multi-tier system could have been arranged on the bonds to protect long term holders. Maybe if an actual judge had been involved instead of Judge Obama that might have happened.”

    These were the junkiest of junk bonds. As stated earlier, they were selling for pennies on the dollar. The only way to justify buying them for something like a pension fund was either very poor management, or hopeful gaming of the US government. The Indiana Teachers Pension Fund held something like 1 million dollars in automaker debt. They fought the terms of the bailout to protect the value of their whopping $1,000,000. They ended up spending more than that $1,000,000 by securing the services of a well known bankruptcy crook lawyer, who took their case to the US Supreme Court, where they LOST. Are those judges not good enough for you?

    Da Goat: “Your claim that China would have bought out GM sounds like wild speculation.”

    LOL. No, really. The Chinese at the time had the only liquidity nearly planetwide. If you think they weren’t chomping at the bit to get any part of GM and Chrysler that they could, you are extraordinarily naive. These companies would have shut their doors and been auctioned off to pay creditors. Thereby taking down Ford and the entire dealer/supplier network. And with our entire industrial base gutted, we would have been SOL.

    DaGoat: “I have been following GM for years and the possible approaching bankruptcy was not something new. Even at the time of bankruptcy they had billions in the bank to pay for legal proceedings, the problem was that had huge debt and were losing billions every month.”

    No, actually GM was not losing billions every month. They were in bad shape, to be sure, but until the banking crisis and economic downturn, they were paying their bills. Yes, they had too much debt and a moribund corporate structure, but it wasn’t until customers couldn’t get loans to buy their cars that the worst came about.

    Chrysler, on the other hand, had been badly, badly mismanaged by first the Germans and then the private equity group, Cerebus. None of those people cared about making cars, certainly not cars they wouldn’t drive, anyway. They took the most profitable automaker in the world and in ten years reduced it to absolute rubble by cheapening, cheapening, cheapening everything about that company. Utterly disgraceful. That company is still the most nimble of automakers, with the most upside potential. Its a company that has always been profitable when the people who ran it CARED about the company, not seeing it as just a paycheck or golden parachute.

    DaGoat: “GM was deemed to big to fail which to me means it’s too big, period. Nothing was done to fix that problem. All that has been proven so far is GM can succeed if they rip off their bondholders and accept billions from the government. Most companies would work pretty well with that business model.”

    Gm and Chrysler were deemed TOO IMPORTANT to fail. Not too big. Too important to the American economy, too important to the American psyche. TOO INTEGRAL to how we see ourselves as Americans, and it would have been TOO SPITEFUL and TOO SHORTSIGHTED to allow our industrial giants to simply disappear in a snit. Which is how I simply cannot understand the ire on the Right that we LOANED these companies money, got the vast majority of it back, thereby averting economic disaster. Win-win.

  • TheMagicalSkyFather

    The fact that the major complaint about the bail out is that it helped the union people I find rather disgusting. The reason is that it comes across like GOP supporters are willing to do ANYTHING to harm union employee’s regardless of cost. People that go to work every day and have put in their time over decades. Yet bond holders that are either gambling on junk or trying to game the system MUST be saved they just MUST. The only way this makes any sense what so ever is if the prime concern was not saving or not saving the jobs or the companies but instead the desire to kill unions and destroy anyone that touched them, ie ideology before nation or even economy. Hard ball politics, sure but I will say I find the lack of concern and compassion for the likely results of such a Pyrrhic victory difficult to watch.

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