One Year Later: 5 Things the Critics Aren't Saying About the Auto Bailout

President Obama is taking a spin in GM's first post-bankruptcy mass-production electric vehicle, the Chevy Volt. 

When President Obama made the decision to bailout the auto industry, with billions of tax payers hard earn dollars, he took a lot of heat from his critics. Many sought to characterize his decision to attempt to save GM and Chrysler as government intervention in the private sector. Now that the American public had a significant ownership stake in both car companies, GM's name was loosely being translated as Government Motors. 

Let's take a look down bailout lane to see what the critics aren't saying one year later.

  

Profitability of GM

Before 2007, GM hadn’t turned a profit until this year. Just this quarter, GM netted a healthy $1.3 billion, as a result of building reliable, appealing vehicles consumers yearned to buy, without huge incentives. Eliminating huge incentives have led to higher transaction prices and higher resale values. 

Yes, had the government not invested in GM we would have missed out on such iconic products as the Corvette or for that matter the Cadillac brand. Moreover, we wouldn’t have had the opportunity to experience GM's award-winning post-bankruptcy products: the all-new Lexus ES fighter, the Buick LaCrosse; the fuel-efficient Chevy Equinox crossover; the return of the retro-designed Chevy Camaro; and the Cadillac SRX crossover.

According to data from the Commerce Department, as cited by Automotive News, a respected industry trade magazine, the motor vehicle output overall in the United States was $314 billion of GDP in the second quarter of 2010 compared with $223 billion in the year ago period and $352 billion in the 2008 quarter. Again we ask: Should President Obama have listened to his critics?

Senior Management Change

Over the years critics of  the auto industry have complained about the U. S.-based automakers home-grown, out-of-touch senior managers with relatively little corporate experience outside of Detroit being out of touch with today's car buyers.

Unlike Chrysler and GM, Ford Motor Company's heir, William Ford, decided to step aside a few years ago from running the family business into the ground, allowing a seasoned industry-outsider, Alan Mulally, a former senior executive at Boeing Airlines, to run the industry. However, until the government intervened into the business affairs of GM and Chrysler, this would have never happened.

As a result of President’s Obama's administration heavy-handed involvement in the auto industry, GM was forced to let go two GM lifers, Rick Wagoner and Fitz Henderson, replacing them with two outsiders, Ed Whitacre and Dan Akerson.

Just maybe had this been done before the government got involved in GM’s business, an industry outsider, attempting to learn the business, would have made better use of GM’s manufacturing partnership with Toyota, specifically during its heyday and prior to Japanese-automaker recent rash of reoccurring recalls. Some believe had they (GM) worked closer with Toyota, the automaker would have never been seeking a bailout.  

Also the bailout forced GM and Chrysler to shed duplicate brands and slow-selling, lack luster models. This would have never been done prior to the bankruptcy bailouts. Was there really a need for Saturn, Pontiac and Hummer? Its being reported that GM is selling just as many vehicles with four key brands.
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And, Chrysler was forced to join hands with Fiat and reexamine their product portfolio, eliminating slow-selling models. Unlike GM, we've only seen one new post-bankruptcy product from the automaker, the Grand Cherokee. Chrysler claims the 2011 Jeep is the best vehicle they've ever built. So far early sales numbers show consumers are snapping up the new Jeep. As of now, we must honestly say its too early to examine the automaker, until they get a few more of their post-bankruptcy products out on the road.

Public Stock-Offerings Coming From GM and Chrysler

Every since the government bailed out GM, the American tax-payer has had a 60 percent stake in GM. GM is expecting a stock offering in the next few months, while Chrysler is shooting for 2011. A successful stock offering would pay back the American tax-payer sooner, taking the American public off the hook. Again we ask the critics: Was it a wise decision by President Obama to bailout the auto industry?

Unemployment Roll

With unemployment numbers hoovering just under 10 percent nationally, just imagined what would have happened had the American government not invested in the GM and Chrysler. Not only would GM and Chrysler current employees be out of a job, but their suppliers, their dealers and affiliates would be out on the streets too.

The Center for Automotive Research released a report last year detailing the impact the three Detroit-based automakers could have on the economy if we allow them to go under. Overall, the U.S. economy would lose close to 3 million direct and indirect jobs in the first year. Added to that, the U.S. government would lose at least $156.4 billion in taxes over the first three years.

Motor vehicle and parts production are still among the largest of U.S. manufacturing industries even though they have lost nearly 175,000 jobs in two years. According to the Labor Department, jobs in the manufacturing sector grew from 663,000 to 704,000, an increase of 43,000, between July 2009 and July 2010, according to Labor Department statistics. And, according to the White House, they've documented an increase of 55,000 jobs over the past year. So regardless if the numbers are 43,000 or 55,000 we all agree this is headed in the right direction, as opposed to the number of jobs that would have been eliminated had the government not intervened.

Home Foreclosures

With home foreclosures at an all-time high, how many more folks would be on the streets looking for a place to live, if the government had side-stepped offering bailout assistance? There seems to be a slight resurgence in home sales in communities where auto manufacturing jobs were saved.

A Proactive Approach

Again, was the government bailout worth it or a poor ROI (return on investment) of tax-payers hard earn dollars? You be the judge! Some believe its better to offer extended unemployment benefits as opposed to invest in the auto industry before people become unemployed. Isn't this the same logic used for the public education system? We spend more money housing the average prisoner, as opposed to the average amount we spend per pupil in the public school system. What sense does this make? What if we spent more on educating prisoners, during their formative years, before they end-up in the system? This could probably decrease the amount of jails being built in America today.