‘The auto industry has added 113,000 jobs over the past two years.” So proclaimed President Obama in his speech Friday at the Chrysler-Fiat plant in Toledo, Ohio, his tone triumphal despite the horrific unemployment numbers that had been released that very morning.
Automotive jobs numbers are cited to end the argument against anyone who objects to the bailout/takeover of General Motors and Chrysler. The White House has largely abandoned the projection that bailout funds will be recovered fully after critics — including my Competitive Enterprise Institute colleagues Hans Bader and Sam Kazman — pointed out the shuffling of government loans to allow GM to claim deceptively that it had repaid taxpayers “in full.” Now the White House is projecting a $14 billion taxpayer loss, and so is putting the focus on the jobs added to the sector supposedly as a result of the bailouts
#ad#But we need to look under the hood of those employment claims. And in this case, the first place to look is a June 1 Cleveland Plain Dealer story by Robert Schoenberger that seemingly contradicts the president’s figures for auto job growth. Schoenberger reported the sobering fact that even after the Bush and Obama administrations spent $62 billion to bail out Chrysler and General Motors, “the two automakers employ 16,500 fewer people than they did in 2009.”
How can these two statistics — 113,000 new jobs and 16,500 fewer auto workers — simultaneously be true? After all, Obama didn’t say “saved or created” — although there was plenty of that elsewhere in the administration’s talking points of the bailouts’ supposed success — he said “added.” And other administration officials and documents also specifically used the term “added” or “created” with the similar statistic of 115,000 jobs when touting the bailouts.
But the fine print, in Obama’s speech quoted above and the quotes listed below, is the artful use of the term “industry” or “auto industry.”
On June 1, for example, the White House issued a report claiming, “Since GM and Chrysler emerged from bankruptcy, the auto industry 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 has added new shifts and 115,000 jobs.”
So how could the “auto industry” have added thousands of U.S. jobs when GM and Chrysler cut jobs? It so happens that both statistics are correct if the reader or listener understands what’s being referred to. But the Obama administration is obscuring what many would consider important information about the nature of the jobs to give undue credit to the bailouts. And that is that many of the jobs added by the “auto industry” have been created by foreign-owned automakers in nonunion states far away from the plants of the bailed out companies — not by GM or Chrysler.
A White House infographic and 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 vehicle and parts manufacturing” does show substantial growth since the summer of 2009 — near the bottom of the recession.
Jobs in this category had been steadily falling since well before the recession, from 1.1 million in 2005 to around 950,000 by the end of 2007. BLS figures show that number of jobs reached a low point of 623,000, when the government took GM into bankruptcy, and rose to 695,000 this March, a gain of 72,000. That’s somewhat less than the administration’s figure of 113,000, and it’s not entirely clear from its charts where the start and end data points are. But I’ll cut the administration some slack on this, since even 72,000 is an impressive gain.
#page#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.’”
#ad#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