You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Car Talk and the Campaign

President Obama plans to make the auto industry rescue a major part of his reelection campaign, according to a new Politico story by Ben Smith and Byron Tau. As readers of this space know, I think he has a strong argument on the merits. The news from General Motors in particular has been extremely positive for the last year. The company is reporting big profits, it is winning design awards, and, most important of all, it is selling lots of cars.

Relative skeptics like the Atlantic’s Megan McArdle have pointed out, among other things, that GM remains too dependent on sales incentives and too dependent on large, gas-guzzling vehicles. They are right. But I think this is more of a glass half empty, half full sort of dispute. GM is a lot less dependent on incentives than it was. One reason for its strong performance of late is the robust sales of more fuel-efficient vehicles like the redesigned Chevrolet Equinox, which reflects the company's new orientation.   

To be clear, I agree that GM remains very much a work in progress. So does Chrysler, or what’s left of it. It’s simply too soon to know whether either company will really thrive, just as the skeptics say. But I also think that's mostly a separate question from whether the administration was right to intervene at the time and in the way that it did. 

Keep in mind that the auto industry rescue was, first and foremost, a reaction to economic triage. Without government financing and administration, bankruptcy would likely have meant the liquidation, not the restructuring, of both car companies. As they collapsed, they could have taken Ford and most of the parts industry with them, because of the domestic supply chain the companies shared.

Projections from the Center for Automotive Research suggested job losses would be in the millions, with potentially catastrophic effects on the rest of the economy. C.A.R. has some ties to the auto industry (as well as academia) and many wondered if those predictions were too dire. But severe short- and medium-term effects on employment seemed likely even under more optimistic scenarios.

By intervening as he did, Obama may have saved the country, or a significant chunk of it, from depression-like conditions. Even if the government ends up losing some money once it is finished divesting itself of GM stock, it can justify the investment as the equivalent of adding an extra $10 or $20 billion in stimulus money--a pittance, in the context of the budget and the economy.

Granted, that's not exactly bumper sticker material. And, in this respect, the auto industry rescue is exactly like the Recovery Act. It raised deficits, however modestly and temporarily, without creating a fully recovered economy in its place. GM and Chrysler both ended up reducing their workforces significantly. The downsizing, if necessary for the companies to survive, was nevertheless painful.

But the news seems to be better these days. Local media here in Michigan increasingly feature stories of auto industry plants adding shifts and workers to accommodate rising demand. And those anecdotes may reflect a broader reality. According to Labor Department statistics, the four states in which the unemployment rate has declined most significantly in the last year are, in order, Michigan, Illinois, Indiana, and Ohio--the four states where what we used to call the Big Three are based. (See the graph above, which shows percentage point drops in unemployment based on data from the Bureau of Labor Statistics.) 

Automobile jobs presumably represent just a fraction of new jobs gained and/or old jobs recovered. On the other hand, when you consider the ripple effects and what that picture might look like if the auto industry had completely collapsed, the bailout's role seems significant. I still wouldn’t describe conditions in any of these states as “good.” The latest unemployment rate for Michigan, 10.3 percent, is still above the national average. Illinois, Indiana, and Ohio all have rates close to 9 percent, which is way too high, particularly insofar as they don't count people who have permanently left the labor force. But at least conditions in these states seem to be improving at a significant rate.

Which brings us to politics. Although Illinois is safely Democratic and Michigan probably is, too, Indiana and Ohio are very much up for grabs. So are Wisconsin and Pennsylvania, two other states in which unemployment has declined significantly and in which the auto industry and manufacturing in general have significant presences. 

One key factor will be the Republican opponent--in particular, whether it's Mitt Romney. In late 2008, Romney wrote a memorable New York Times op-ed opposing direct assistance for the auto industry, at a time when most of the Republican Party was more than willing to let the Chrysler and GM disappear. But while the headline on that article said "Let Detroit Go Bankrupt," the substance was more nuanced. Specifically, Romney proposed the government shepherd the companies through bankruptcy, with financial backing and other types of assistance. At least in broad terms, that's what the Obama Administration eventually did. And, as far as I can tell, Romney actually praised Obama for that decision when he made it.

Of course, Romney’s support for anything that smacks of “bailout” could be a liability in the Republican primaries, just as his sponsorship of health care reform in Massachusetts is likely to be. (Worse still, in the same op-ed Romney also called for an addition $16 billion in government spending on research into alternative energy sources. Tea Party beware!) But if Romney makes it to the general election, that position could help him in a region of the country that he, or any Republican, would need to win.

Bonus: This week's "Car Talk" from Click and Clack, just because I have an excuse to post it.