Obama’s Funny Auto-Jobs Math
Yes, the auto industry has added jobs, but not the companies we bailed out.


John Berlau

The problem for bailout defenders, though, in touting these gains is that the BLS is very clear this number includes U.S. jobs created by all manufacturers — foreign and domestic — and that foreign automakers with plants in the South have been picking up the slack in hiring. “Automotive employment is shifting away from its traditional base in the Midwest to the southeastern States,” says the BLS in its 2010–11 Career Guide to Industries. “A large number of these assembly plants are owned by foreign automobile makers, known as ‘domestic internationals.’”

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. 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 benefitted 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 now that we’ve established that few of the jobs created in the auto industry can be credited to the bailouts, we are left with the question of how many jobs were “saved” by them. For the Obama administration and bailout defenders, this number is infinite. But this assumes that nothing would be recovered from bankruptcy, which is ridiculous. As Jim Manzi pointed out in the Corner, “in the event of a bankruptcy, you don’t burn down the factories, erase all the source code on all the hard disks, [and] make it illegal to use the brand name Chevrolet.”

It’s also worth noting that the bailout/takeovers themselves caused thousands of job losses, both directly and indirectly. Take the jobs that were shed in the hyper-quick dealership closings. Some dealers would have and should have been closed in normal bankruptcies, but the Obama administration whiz kids who designed the auto restructurings forced 25 percent of GM and Chrysler dealers to close in less than four months.

The National Auto Dealers Association estimated that 110,000 jobs would be axed. The automakers challenged these figures as too high, but the 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.”

This sudden mass loss of dealership jobs directly caused by the Obama administration’s bankruptcy plans is particularly striking given Geithner’s rationale for saving Chrysler expressed in his Washington Post column. There, Geithner explained that the firm was rescued because “the president knew that if Chrysler collapsed, tens of thousands of jobs would have been shed in the near term — a body blow to an economy already on the ropes.”

But there was apparently no such concern about the body blow to auto dealers and their employees, who lacked the clout with this administration of the United Auto Workers (UAW). Barofsky’s report found that “job losses at terminated dealerships were apparently not a substantial factor in the Auto Team’s consideration of the dealership termination issue.”

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 UAW 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 lenders 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 senator 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.”

So the real question of the auto bailout/takeovers should be how many future jobs did we sacrifice though the disregard of the rule of law? The 9.1 percent unemployment rate may be giving us some clue.

—John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute. Michael Sebany, a CEI research associate, contributed to this article