This post was coauthored by CEI Research Associate Andrew Kwiatkowski
As we write, President Obama and Vice President Biden are doing a victory lap around a Chrysler plant in Kokomo, Indiana, in the wake of last week’s successful initial public offering of General Motors. They will likely rattle off a litany of positive statistics that they and an adoring audience will attempt to attribute to the $82 billion bailout of Chrysler and GM.
But the figures the president has cited, and will likely cite today, of jobs added to the auto industry over the past year include jobs at Toyota, Hyundai, Kia and other foreign automakers with U.S. plants — job growth at nonunion plants that can hardly be attributed to the bailout of the domestic companies.
Since last Thursday’s IPO, prominent news outlets have erroneously reported that Chrysler and GM have added 75,000 jobs since the bailout. National Public Radio’s Mara Liasson reported that Obama “said that since GM and Chrysler have emerged from bankruptcy, they’ve created more than 75,000 new jobs.” A story on CNN.com similarly states, “He said GM — with fellow Michigan-based auto giants Ford and Chrysler — have created more than 75,000 jobs in recent months.”
But if you listen closely, this is not exactly what the President says, even though he probably doesn’t mind being misquoted in this instance. In fact, his statement almost lures readers into making this error. In one sentence he speaks of rescuing GM and Chrysler, yet in the same breath cites job growth figures for the entire automotive sector. Obama said Thursday, “Since GM and Chrysler emerged from bankruptcy, the industry [emphasis added] has created more than 75,000 new jobs.”
Just what did the president mean by “the industry?” Here’s the rub. An earlier White House “fact sheet” touting this job growth cited the Department of Labor’s Bureau of Labor Statistics (BLS). And indeed, if one were to look at BLS’s industry category of “motor vehicles and parts” and measure from its low point in May 2009, when there were 626,000 jobs, to July 2010, when 705,000 jobs, this would be a growth of 79,000 (see the figures on the BLS chart here). The number fell in August to 684,000, and the project number for October is only slightly higher, but that’s still growth of about 60,000, and I’ll cut the White House some slack.
The problem for Obama is, though, whether we’re talking about 60,000 or 80,000 additional jobs, this figure includes U.S. jobs created by all manufacturers — foreign and domestic. As Sam Foster wrote in the Daily Caller, “That means Toyota jobs, Hyundai jobs, Ford jobs or any other job creation from an automaker so long as they were residing in America.”
And it is of course very good news, as well as a tribute to the quality of America’s labor force, that foreign auto and auto parts makers want to hire here. The trend seems to be growing, as BMW recently announced it would hire 1000 new workers at its plant in South Carolina. (Amazingly, Ralph Nader is complaining about this, because the $15-per-hour wage is less than what workers are paid in BMW’s native Germany!)
But it is very difficult to attribute this new hiring by foreign firms to the U.S. government’s bailout and takeover of our domestic dinosaurs. A plausible argument could be made that Ford, which wasn’t directly bailed out, was helped by the bailout assistance to Detroit suppliers. No such assertion can be made, however, for foreign global automakers that buy and sell all over the world. Plus, it goes against the “we’re number one” theme that Obama seems to be stressing in Kokomo on behalf of the bailed-out automakers.
In fact, despite the $82 billion from taxpayers and despite GM’s successful IPO, a look at GM and Chrysler alone still shows a huge net job loss from the bankruptcy. And this does not even count the losses from the rapid closure of car dealers, as well as the likely loss of jobs due to the higher cost of capital as a result of the disparate treatment of “old GM” bondholders in the bankruptcy in favor of the United Auto Workers.
Let’s go through the dismal job numbers. In the one area of White House “fact sheet” that discussed jobs specific to the Big 3, it projects that “in total, the big three will have added as many as 11,000 new jobs before the end of 2010.” But according the book Overhaul by Steven Rattner, one of the Wall Street “whiz kids” who designed the automaker bankruptcy on the Obama administration’s “Team Auto,” GM and Chrysler shed almost 34,000 jobs during bankruptcy. So that’s still 23,000 jobs to break even.
And that’s not including the jobs that were shed in the hyper-quick dealership closings. Some dealers would have and should have been closed in a normal bankruptcy, but Rattner and Team Auto forced 25 percent of GM and Chrysler dealers to close within less than four months.
The National Auto Dealers Association projected that 110,000 jobs would be axed, resulting a loss in total compensation of $1oo million. The automakers challenged these figures as too high, but respected special inspector general for Neil Barofsky agreed that “tens of thousands of dealership jobs were immediately put in jeopardy” by the “rapid pace” of dealer closings.
In his report, Barofsky also faulted the administration for not preparing a formal “cost savings estimate” before closing the dealers. Jobs were put at risk, Barofsky wrote, without “any explicit cost savings to the manufacturers in mind.”
And then there are the jobs not created and businesses not opened because of the likely increase in the cost of capital from the shabby treatment of bondholders. The Obama administration designed a restructuring that disregarded two centuries of bankruptcy precedent to massively favor the United Auto Workers over bondholders, many of whom were middle-class retirees served by pension funds.
This abrogation of contracts, prominent scholars say, could discourage lenders from financing businesses due to fear of future politicized bankruptcies. As CEI adjunct fellow Todd Zywicki, professor of law at George Mason University, eloquently put it in a Wall Street Journal op-ed: “By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation.”
Photo Credit: Zach K.’s Flickr Photostream