The Auto Bailout Victory Lap
Obama brags about his awesome policies at an idled plant.
In advance of his upcoming State of the Union Address on Jan. 20, Barack Obama kicked off a three-state tour in Michigan highlighting what he considers to be some of the accomplishments of his tenure. His Wednesday speech came from a Ford assembly plant near Detroit, touting his auto bailout.
The president said he “didn’t want to wait for the State of the Union to talk about all the things that make this country great and how we can make it better. … I thought I’d get started this week.” But there was little in the way of new policy discussion. Obama instead filled his speech with pandering to Detroit Lions fans still smarting over last week’s controversial playoff loss to the Dallas Cowboys, longing for the new Mustang, and doling out his version of our recent economic story – one which included his auto industry bailout saving the day.
Unfortunately, that bailout came at a cost to taxpayers of nearly $10 billion. And while Obama dubiously insisted that doing nothing would have caused suppliers and distributors to go under along with automakers, the resulting bankruptcy procedure enriched the United Auto Workers at the expense of bondholders and non-union pensioners. A typical bankruptcy may have instead allowed GM and Chrysler to cut costs significantly, with any production stoppage being laid at the feet of the UAW’s refusal to make concessions in order to save their workers’ jobs. What we got instead was a couple years of “Government Motors” ownership and Chrysler being gift-wrapped by the UAW and presented to Italian automaker Fiat.
It’s ironic that Obama chose a Ford plant for his speech, because Ford didn’t take his bailout. That doesn’t mean Ford is clean, however, having benefited from a low-interest $5.9 billion Department of Energy loan for retooling the Michigan facility for hybrid cars. The loan was, of course, made necessary by government fuel mileage mandates. And like all central planning the loan wasn’t exactly fruitful: The plant was recently idled due to slow sales of the gasoline-powered Focus and hybrid C-Max models.
The boom in oil production Obama alluded to in his speech has brought gasoline prices down to a point where customers are again considering larger SUVs and trucks, leaving a glut of smaller cars on dealer lots during a traditionally slow time for sales. Of course, this will be addressed in coming years through supply as automakers dropped their opposition to more stringent fuel economy standards that will make current SUVs all but unattainable.
Indeed, Obama warned, “Gas prices aren’t gonna be low forever, so don’t start suddenly saying you don’t have to worry about fuel efficiency. If you’re going out shopping for a new car, don’t think it’s always going to be this low, because then you’ll be surprised and you’ll be mad at me later … and I’ll be able to say, ‘I told you don’t get a gas guzzler because gas is going to go back up.’ But while it’s low, enjoy it.”
The auto bailout is just one instance of the recent past sowing the seeds for future failure. To paraphrase James Madison, we cannot undertake to lay our fingers on that article of the Constitution that deemed a corporation or financial entity as “too big to fail.” Yet Washington set the precedent of destroying part of the free market system to save it when it bailed out automakers and mega-sized financial institutions in 2008-09.
For a half decade we have seen that, regardless of the incentives placed in front of them, people want the types of cars and trucks that fail the test of environmental correctness by being too large or by using fossil fuels – never mind that most of our electrical power to recharge plug-in models comes from fossil fuels like coal. Even “flex-fuel” models that can use E85 ethanol are slow to leave dealer lots. (And don’t get us started on ethanol.)
Obama came to Detroit and told the crowd, “The facts are the facts. … Every once in a while it’s important for us to hear some good news.” It is certainly good that the auto industry is back on its feet, but the real question is, how long will the good times last with the government’s foot on the brake?