Obama saved the auto industry
Liberals have never loved a op-ed written by a Republican as much as they love Mitt Romney’s 2008 New York Times piece titled, “Let Detroit Go Bankrupt.” Virtually every Democratic National Convention speaker has cited the op-ed by name, including President Obama’s former Chief of Staff and current Mayor of Chicago Rahm Emanuel who said Tuesday night:
Whose leadership, whose judgment, whose values do you want in the White House when that crisis lands like a thud on the Oval Office desk? A person who said in four words, “Let Detroit go bankrupt,” or a president who had another four words, “Not on my watch”?
True, Obama and President Bush did end up spending over $80 billion bailing GM and Chrysler out. But the fact remains that, as Romney advised in November 2008, Obama did use the bankruptcy process to reorganize these two auto makers. Problem is, by intervening in the bankruptcy process at almost every turn, Obama both undermined the rule of law and cost the taxpayers $26.5 billion in the process.
In their recent paper, “Auto Bailout or UAW Bailout? Taxpayer Losses Came from Subsidizing Union Compensation,” George Mason University Law School bankruptcy expert Todd Zywicki and Heritage Foundation labor expert James Sherk detail how Obama’intervention did not save the U.S. auto industry, it just made it more expensive.
Despite receiving billions of Troubled Asset Relief Program (TARP) funds in the winter and spring of 2008 into 2009, both Chrysler (May) and GM (June) formally declared bankruptcy in the summer of 2009. In a normal bankruptcy process, a bankruptcy court has a number of powers at its disposal to ensure that: 1) the emerging companies are financially competitive, 2) creditor interests are protected, and 3) all workers are treated fairly. Obama either abused or ignored all of these powers, always to the benefit of unions, and always to the detriment of taxpayers, non-union workers, and investors.
First, Section 1113 of the Bankruptcy Code empowers courts to rewrite labor contracts to make the surviving companies more competitive. Obama failed to exercise this power. Just ask Obama’s Car Czar Steve Rattner who recently admitted, “We should have asked the UAW to do a bit more. We did not ask any UAW member to take a cut in their pay.”
Second, a fundamental principle of bankruptcy law is the presumption that similarly situated creditors should receive similar treatment. Obama violated this in a number of ways, always to the benefit of unions, most famously paying off Chrysler’s unsecured union benefit trust fund instead of Chrysler’s secured creditors.
Finally, Obama protected some union pensioners while leaving similarly situated non-union workers vulnerable. Specifically, GM gave $1 billion to Delphi’s union retirees, but gave their non-union retirees nothing.
According to calculations by Sherk and Zywicki, Obama’s violations of bankruptcy law made the bailout of GM and Chrysler $26.5 billion more expensive than it had to be. And, according to Obama’s own Treasury Department, taxpayers stand to lose $25 billion on the bailout if GM stock were sold today. In other words, had Obama followed the law, the American people would have turned a $1.5 billion profit on the deal. That number would be even higher if Obama had sold the taxpayers 500 million shares of GM stock before the company began to tank this year.
Campaigning in Pueblo, Colorado this August, Obama said, “I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.”
At $25 billion a shot, can America really afford that?