Auto-Bailout Casualties
The Obama administration insisted on closing too many dealerships.


John Berlau

In the Obama auto bailouts, jobs were not all created equal. The administration moved heaven and earth to save the jobs and generous benefits of General Motors and Chrysler workers who belonged to the United Auto Workers, ripping up the contracts of bondholders and secured creditors to give the UAW an enlarged stake in the new companies. “As a result,” notes Amy Payne of the Heritage Foundation, “even after the reorganization, GM still has higher labor costs ($56 an hour) than any of its foreign-based competitors.”

But non-UAW workers affected by the bankruptcies were not so lucky. At a former GM subsidiary, Delphi, which manufactures automotive parts, 28,000 UAW workers were paid full pension benefits that GM had promised, but 41,000 other workers were not. As Todd Zywicki, professor of law at George Mason University, testified before the House Oversight and Government Reform Committee: “Had new GM treated Delphi’s UAW and non-union employees equally, the Treasury could have paid $1 billion less for the GM bailout. Instead, some workers became more equal than others.”

And perhaps no workers were less equal in the bailouts than the employees of GM and Chrysler dealerships. About 100,000 mostly blue-collar jobs — a number approaching the total work force of GM and Chrysler, according to the Cleveland Plain Dealer — were put on the chopping block by “Team Auto,” the Obama administration’s auto-bailout task force, which insisted on extraordinarily rapid closures of auto dealerships during the government-organized bankruptcy proceedings.

Mitt Romney’s new ad highlights the impact of the closures on one dealership in Lyndhurst, Ohio. The owner, Al Zarzour, speaks of having to lay off “30-some” employees when his Chevrolet dealership was put on the GM closure list in 2009.

Obama supporters as well as right-leaning Washington Post blogger Jennifer Rubin cried foul, claiming that the dealer closings were necessary for the automakers’ viability and that virtually no dealership jobs would exist had the auto companies gone into a normal bankruptcy. But an acclaimed new book, Bailout, by Neil Barofsky, former special inspector general for the Troubled Asset Relief Program (TARP), shows that the first half of this critique is false and the second half highly tenuous.

“Is Romney saying that in a ‘managed bankruptcy’ these dealerships wouldn’t have closed?” asks Rubin. Romney hasn’t responded yet, but Barofsky argues forcefully that the Obama administration pushed for many more closures than bankruptcy and restructuring experts deemed necessary. In Bailout — other aspects of which have been praised by the Huffington Post, a notably progressive outlet — Barofsky paints a far more devastating portrait of the Obama administration’s arbitrary dealer closures than does the Romney campaign, whose attacks on them have been relatively mild.

Contrary to the administration’s claim that the dealer closings were entirely GM and Chrysler’s decisions, Barofsky writes that Obama’s “auto team had pressured the companies to close the dealerships” more rapidly and in greater numbers than the firms had wished. As a result, more than 2,000 dealership agreements were terminated within a few months in 2009.

Barofsky concludes that “relatively little thought had gone into Treasury’s determination that the dealership closings had to be immediate.” He reports that after “interviewing many of the same experts Treasury had consulted,” his group of auditors “found remarkably little support for the auto team’s determination that the viability of GM and Chrysler depended on their closing so many dealerships so quickly.”