It is being suggested that President Obama’s reelection was at least in part helped by the auto industry bailouts, or more accurately, the portrayal of the bailouts by the president and the media. It is therefore important to surmise that the precedent setting auto bankruptcy proceedings saw billions of taxpayer dollars used to not only help the industry, but to fund the reelection of the sitting president that orchestrated the process.
The greatest travesty of the 2012 election campaign may have been that the auto bailouts were never properly debated. The main point should not have been whether or not the government should have been involved in helping the industry, but whether the process was carried out in the fairest manner with the least amount of taxpayer dollars put at risk. Even though the auto bailouts were unpopular with most Americans, the Romney team seemed to want to avoid the issue for fear of losing votes in Ohio and Michigan. And the mainstream media has given very favorable coverage to General Motors, Chrysler and the often overlooked, government-owned Ally Financial (previously GMAC), which spend billions of dollars on ads.
What the public heard and saw about the auto bailouts was a misrepresentation of what actually transpired. While Mitt Romney was accused of lying about Chrysler’s Italian parent company Fiat planning to build Jeeps in China (which was true), President Obama received very little criticism for falsely claiming that he refused to “let Detroit go bankrupt,” which was exactly what he did.
America, and perhaps more importantly the politically crucial swing state of Ohio, repeatedly were recited the story that Obama “saved” the auto industry while Romney wanted “Detroit to go bankrupt.” The bankrupting of Detroit did play out under President Obama in 2009 at the initial cost to taxpayers of approximately $85 billion. When the companies that received the money (primarily GM and Chrysler) remained in operation three years later, this was depicted as a great success. How couldn’t they appear strong after receiving this kind of windfall?
$85 billion is a lot of money, a fact that our government may not grasp. That’s $85,000,000,000. If you spent a million dollars a day, it would take over 232 years to spend $85 billion. It took a lot less time than that for the Obama Administration to distribute taxpayer-supplied TARP funds, which were earmarked for financial companies with systemic risk to the financial market, to the auto companies. In addition, tax credits were given to GM so that they could avoid paying their fair share of taxes for years to come.
The most recent estimate as to what the taxpayer losses will be on the “Detroit bankruptcy” (AKA auto bailouts, AKA the saving of the auto industry) is about $25 billion. That figure excludes the billions of dollars in lost tax revenue from GM’s sweetheart tax credit deal. That’s almost a 30% loss on “investment.” But this was a small price to pay for the president that served as financial advisor in chief, considering that the money put him in the good graces of the politically-powerful UAW and would eventually help him win a second term as he campaigned on the “saving” of the American auto industry.
The fact is that many groups were hurt in the auto bankruptcy process. The politically-favored UAW was well taken care of while shareholders, creditors and non-unionized retirees lost all or most of their assets. Tens of thousands of non-unionized workers at showrooms that were forced to close lost their jobs. The proceedings could certainly have been carried out in a fairer manner. Taxpayer money was spent without regard to minimizing risks. If auto industry experts were consulted instead of the process being orchestrated by politicians, cronies and bankruptcy experts, taxpayers would have lost much less money and the industry would be in better shape today. Instead, what we ended up with was an auto bailout process that became the largest violation of private property rights and contract law in our nation’s history which may have also undermined our very democratic system by using billions of dollars of taxpayer money to sway voters in politically important states. That is what I will remember most about the 2012 election and the bankrupting of Detroit, despite how those who attempt to rewrite history choose to record the events.
Mark Modica is an NLPC Associate Fellow.