- Because of the financial crisis and its repercussions.
- Because of government regulations and labor unions.
These two views lead to opposite goals:
- Federal and local governments should help out.
- Governments should do nothing but get smaller.
Auto sales collapsed exactly in time with Wall Street’s S&P 500 stock index. It took only one year and occurred under Bush. Does it look like the problem was new government regulations and labor unions?
Sure, the auto industry has other problems, but the collapse was caused by people deciding not to buy cars (duh), because their wealth was being vaporized in the stock market, and they were losing jobs, homes and home equity. But you knew this.
So Mitt Romney wrote two op-eds on how to fix the auto industry and never once mentioned the economy or the financial crisis. In “Let Detroit Go Bankrupt,” he blamed everything on management and unions.
He figured the government “should invest substantially more in basic research — on new energy sources.” Great, it’s November 2008; Wall Street is taking down the economy at a million jobs a month, and Romney is saying the federal government should find new energy sources, and let the car companies deal with Wall Street in bankruptcy court.
Obama postponed the bailout as long as possible, but the auto industry was still sinking fast in June, when he forced the bankruptcy, restructuring, and bailout of GM and Chrysler. As you can see in the graph above, it worked.
Even President Bush knew better than Romney when he authorized the first $17.4B in TARP [F[See this on the Bush White House web site for Dec. 19, 2008.]F] funds for the auto bailout, saying “the impact of a disorderly bankruptcy would be very damaging to our manufacturing base, affecting jobs well beyond the auto industry [and] would likely postpone our economic recovery considerably.”
Forbes quotes Jeffrey Coats, CEO of online auto-buying site Autobytel saying, “Usually, housing leads the economy out of a recession, but this time it is manufacturing … because of the auto bailout, that saved jobs and now it’s driving the economy.”
Amazingly, Ford testified before Congress [F[“I testified on behalf of GM and Chrysler, as you know. The reason we did was that we believed—like two presidents [Bush and Obama]—that if GM and Chrysler would have gone into freefall bankruptcy, they would have taken the supply base down and taken the industry down plus maybe turned the U.S. recession into a depression. So I think we did the right thing by testifying on their behalf and I think that the government did the right thing for that critical industry at that time to step in and help.” —Alan Mulally]F] that its two biggest competitors, GM and Chrysler, should get government help even though it wasn’t taking any. That’s because Ford, like Presidents Bush and Obama, and like most of us, understood the problem was bigger than just two car companies. As Ford’s CEO said, “It was a bigger issue of systemic risk both on the financial system and also on the manufacturing system. … The chance of catastrophic failure was very high.” (Detroit’s best chief executive)