Obama's Auto Fairy Tale

Obama is reluctant to shoulder responsibility for the overall state of the economy, but doesn't mind taking credit for every car sold since 2009.


I'm a little hazy on the particulars, but as I understand things from the Democratic convention, a team of Navy SEALs landed in Detroit to save General Motors, and then autoworkers ran over Osama bin Laden repeatedly with a Chevy Volt.

Or something like that. What was clear, regardless, is that the same people who are reluctant to shoulder responsibility for the overall state of the economy do not mind taking credit for every car sold in America in the past 44 months.

Barack Obama didn't just rescue GM and Chrysler, we are told. He preserved a million jobs. He saved the entire auto industry. He invented a catalytic converter that churns out rainbows.

Hosannas came from nearly every speaker, particularly former Michigan Gov. Jennifer Granholm, whose antics fell just short of the standards required for involuntary commitment in North Carolina. But the story is not quite so simple or rosy as you might conclude.

In the first place, Obama does not deserve all the credit for the bailout of the automakers. It got started under President George W. Bush, who reaped curiously little praise in Charlotte.

Nor is it necessarily true that had this administration declined to intervene, GM and Chrysler would have promptly disappeared. Plenty of companies continue to operate after filing for bankruptcy, including the one I work for, Tribune Co. Airlines, restaurant chains and clothing retailers have all gone into Chapter 11 and lived to tell the tale.

GM and Chrysler had a slightly harder problem because they sell long-lasting products—and customers might have doubted they would be around to honor their warranties. But they could have contracted with independent companies to handle that job. Or the administration could have guaranteed their warranties, as it did, and stopped there, which it didn't.

Saving two companies is not the same thing as saving the U.S. auto industry, which includes a host of other corporations that make cars here. Not only did the others get nothing; they were penalized for prospering. Having kept labor costs down and quality high, companies like Toyota, Subaru and Honda lost many of the usual benefits of their achievement. Sales and profits they should have reaped, they didn't.

All the administration proved is that if you pump enough federal helium into a sinking business, you can keep it aloft for a while. By the administration's own estimate, taxpayers will lose $25 billion on the deal.

Writing in The Wall Street Journal, Todd Zywicki of George Mason University law school and James Sherk of the Heritage Foundation point out that "GM still has higher labor costs ($56 an hour) than any of its competitors"—something a normal bankruptcy likely would have altered.

Even former Obama auto czar Steven Rattner has admitted, "We should have asked the UAW to do a bit more." But if they had done that, the UAW might not be so enthusiastic about re-electing Obama.

These costs are a particular burden to companies that can't charge a premium for superior reliability and design. When Forbes magazine compiled a list of the 10 worst built vehicles of 2012, eight came from GM or Chrysler. Consumer Reports' five top-ranked brands this year are all Japanese. The worst two overall? You guessed it.

"All I've learned about women is that whatever it is they want, it's what I don't have," grouses the narrator of Larry McMurtry's 1978 novel "Somebody's Darling." "Don't have it—never had it—can't get it."

GM and Chrysler have the same trouble in the pursuit of top quality. The secrets applied by Japanese rivals remain a mystery to Detroit. By now McMurtry's character may have overcome his deficiency. But for decades GM and Chrysler have been trying to catch up, and they are still falling short.

They are making money right now, but more because the economy is rebounding than because they have fixed their flaws. The long-term outlook for GM is not bright. Its share of the U.S market plunged from nearly 29 percent in 2002 to 20 percent last year and kept falling, hitting 17.4 in July. Chrysler has boosted its share of sales, but its quality problems don't bode well.

The bailout is the opposite of what is needed to foster general economic vitality, which means its overall effects, immediate and eventual, are bound to exceed the benefits. Eventually, we may arrive at a feeling many an impulsive car shopper knows well: buyer's remorse.