Did the government overpay in the auto bailout?
I play a bit part in "Overhaul," the fascinating new book about the bankruptcy-cum-bailout of GM and Chrysler by former Obama administration auto task force chief Steven Rattner. Rattner recounts visiting the Post editorial board in 2009 to pitch us his plans -- only to run into yours truly, demanding to know why he hadn't imposed stiff wage cuts on the United Auto Workers, like the concessions that journalists at the financially troubled Boston Globe were facing.
Rattner parried my questions -- but they got under his skin. Indeed, in the book he pronounces the auto bailouts, which cost a total of $81.8 billion, an "unambiguous success," but he confesses to lingering "buyer's remorse" because the auto task force failed to impose tougher pay reductions or to reform bloated pension programs at GM and Chrysler. A private equity firm would surely have insisted on steeper cuts, Rattner concedes. So why did the government -- which, as the sole possible source of funding for the firms, had all the leverage in the world -- blink?
Some of Rattner’s explanations don't entirely persuade. At various points in the book, he suggests that the UAW might have gone on strike if the task force had pushed it too hard. Yeah, right. At the height of the worst recession since the Great Depression, a strike would have destroyed the industry, and with it, the UAW. If the union was suicidal enough to do something like that, then it didn’t deserve help.
More plausibly, Rattner suggests that the task force trimmed some of the UAW's least defensible perks and work rules, thus bringing UAW-plant compensation within range of that at nonunion factories -- and fulfilling even the Bush administration's tough conditions. Of course, the Bush administration set those conditions when it was contemplating lending money to the autos, not buying GM, as the Obama administration eventually did. In any case, if the goal is to create the most value for the taxpayer, why not shoot for a slightly lower cost structure than the competition?
This would have imposed hardship on previously well-paid autoworkers. But they still would have had jobs. And there's a case to be made that the union's perks and prerogatives over many years eroded Detroit's competitiveness as much as GM's bad management did. One has a certain sympathy with Rick Wagoner, the ex-GM CEO whom Rattner unceremoniously sacked. Upon getting the bad news, Wagoner pointedly asked: "Are you going to fire [UAW chief] Ron Gettlefinger, too?" If GM and the UAW want to negotiate hourly wages and health benefits that exceed those of the average citizen, that's their business; but when they start asking that selfsame citizen to underwrite those contracts, it's another story.
The obvious retort to Rattner is that the UAW got kid-glove treatment because it is a pillar of the Democratic Party coalition and had backed Obama's presidential campaign to the hilt. But I believe Rattner when he says that the White House put no overt, specific pressure on the auto task force.
Politics distorted the process more subtly -- more pervasively. The government lost leverage the minute it intervened at all, signaling its fear of a sudden auto industry collapse and all the social consequences that would bring. Yes, the auto task force could threaten to withhold money. But GM and Chrysler -- and all the interconnected banks, unions, local governments and supplier firms that lived off them -- could threaten to, well, collapse.
The Obama administration, like the Bush administration before it, regarded the auto companies as too big to fail, and everyone knew it. As Rattner puts it, "taking it all the way with GM and Chrysler could have involved trying to break the UAW and crushing the creditors into the minimal recoveries that they deserved -- steps that we believed unimaginable for the Obama administration." David Axelrod didn't have to call and spell it out for them.
It may seem petty to dwell on such things now, when the administration is urging us to celebrate the rescue of the industry and GM is preparing for an initial public stock offering later this year. The point, though, is that the auto task force sent the two companies back out into the marketplace in better shape -- not the best possible shape. In strict business terms, the government clearly overpaid, probably by billions of dollars, for GM and Chrysler. The question, to be answered at least partly by the initial public offering's success in the markets, is precisely how much it overpaid -- and whether the avoidance, or postponement, of the companies' collapse was worth the price.
At one point in the book, a GM executive boasts to a Rattner aide that the company has come up with a "credible" new car design. Somewhat stunned, the aide replies: "Shouldn’t the standard we’re shooting for be 'compelling,' not 'credible?'" You might say the same about the auto bailout itself.
| September 21, 2010; 3:13 PM ET
Categories: Lane | Tags: Charles Lane
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