“So far the auto industry’s added 113,000 jobs over the past two years.” So proclaimed President Obama in a speech at the Chrysler/Fiat plant in Toledo , Ohio, that was triumphal despite today’s horrific unemployment numbers. The 113,000 slightly less than the figure the administration and the media have touted all week of 115,000.
But to use some auto terminology, both sets of these jobs figures have been jacked up. As with buying a car, it’s always a good idea to look under the hood. And upon closer examination, this White House’s auto bailout “success” statistics turn into lemons.
In the cases of the GM and Chrysler “repaying” their loans, as my Competitive Enterprise Institute colleague Hans Bader and TruthAboutCars.com editor Edward Niedermeyer have documented, a substantial portion of the payback in both cases was — in Neidermeyer’s words — simply “shuffling government money from one pocket to another.” Chrysler is slated to receive a $3.5 billion Department of Energy loan Niedermeyer argues will free up capital to pay back the bailout funds. And even the White House admitted a couple days ago that the government will still lose $14 billion, though it makes much of the fact that this is much less than the projected taxpayer loss last year of $9 billion
And the White House is performing a similar “shuffle” of industry statistics in crediting all jobs added in the auto sector to the bailouts. Most likely included in the figure of 115,000 or 113,000 new auto industry jobs are jobs at Toyota, Hyundai, BMW 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.
The number of jobs “saved or created” that can be directly attributed to GM or Chrysler is a fraction of that. And on net, when examining the jobs lost as a result of the bailout through rapid dealer closings and the scaring away of investors due to the reckless disregard of contract obligations to favor Big Labor and auto giant Fiat SpA, a case can be made that the bailouts were actually a job-killer.
In their touting of the 115,000 job number, note the careful parsing of words in statements from the Obama and administration officials. They start out speaking of rescuing GM and Chrysler, yet end the sentence or paragraph citing job growth figures for the entire automotive industry
On June 1, for example, the White House issued a report claiming, “Since GM and Chrysler emerged from bankruptcy, the auto industry [emphasis added] has created 115,000 jobs.” Treasury Secretary Tim Geithner chirped the same statistic in an op-ed in the Washington Post, bragging that since GM filed for bankruptcy, “the industry [emphasis added] has added new shifts and 115,000 jobs.”
And recall that in his speech today, Obama himself referred to the “auto industry.” But just what is meant by “the industry?” Geithner’s op-ed and the new White House report do not cite a source, but earlier White House “brag sheets” and reports attribute the job growth figures to the Department of Labor’s Bureau of Labor Statistics. And indeed BLS’s industry category of “motor vehicles and parts” does show substantial growth since the summer of 2009 — a near-bottom of the recession.
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 pundit 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, and that manufacturing in general has been experiencing a pickup (though just-released figures show the rate of manufacturing job growth falling back to its lowest point since September, paralleling the trends in overall employment).
But it is very difficult to attribute this new hiring by foreign automakers to the U.S. government’s bailout and takeover of our domestic dinosaurs. A plausible argument could be made that Ford, which was able to refuse bailout money because of prudent steps it had taken to get its finances in order before the crisis, was helped by the bailout assistance to Detroit suppliers. The White House report tries to make this case, though it’s also plausible that Ford could have benefited by capturing the market share of its competitors were they not bailed out.
No such assertion can be made, and the Obama administration hasn’t really even tried to make one, for foreign automakers that buy and sell all over the world and primarily locate their U.S. facilities in Southern right-to-work states. Their fates have little connection to the Detroit supply chain, and they often bring along their own suppliers when they locate in the U.S.
So how many jobs can really be attributed to the auto bailouts? Buried in the White House report is the much lower figure of “creating or saving nearly 20,000 jobs” specifically at GM and Chrysler.
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, even putting aside the controversial “saving or creating” methodology to derive to 20,000-job figure, that still leaves 14,000 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 in a loss in total compensation of $100 million. The automakers challenged these figures as too high, but respected special inspector general for TARP 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.”
Barofsky also found that “job losses at terminated dealerships were apparently not a substantial factor in the Auto Team’s consideration of the dealership termination issue.” In other words, the sales forces didn’t have the clout with the Obama administration that the UAW and Fiat have.
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 GM 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 United Auto Workers and, in Chrysler’s case, Fiat.
Fiat, the giant Italian auto and financial firm, received nearly one-third of Chrysler without having to put up one dime in cash. In the meantime, many of the secured lender and bondholders demonized by Obama and his minions as “fat cats” were actually middle-class retirees served by pension funds. Indiana Treasurer Richard Mourdock, who is now challenging incumbent Sen. Richard Lugar in the state’s GOP Senate Primary, filed a lawsuit against the takeover on behalf of state pension funds serving teachers and police officers. The suit was ultimately unsuccessful.
This abrogation of contracts, prominent scholars say, could discourage lenders from financing businesses due to fear of future politicized bankruptcies. As 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.”
That’s really something to celebrate — not!
Michael Sebany, a research associate at the Competitive Enterprise Institute, contributed to this post.