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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.

By Charles Lane  | September 21, 2010; 3:13 PM ET
Categories:  Lane  | Tags:  Charles Lane  
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Comments

There once was a Shopkeeper who bragged about how popular his shop was. Tired of hearing him boast, the Councilman bet 1000 gold coins that he could win a debate about the popularity of the shop compared to the popularity of the town's laws. The Shopkeeper confidently agreed. All the town gathered to listen to each make his case for 5 minutes and then vote at the end.
The shopkeeper went first, and explained how his shop provided fresh food and tools and liesure items for all the town, how folks could gather under the shaded patio for a drink and a snack, and other pleasant aspects of the shop. The crowd murmured approval at these true statements.
Then the councilman explained that if the people voted for the Shopkeeper, that the Council would pass a 20% sales tax on all the town's transactions. The crowd booed, but they voted the Councilman the winner of the debate, and the Shopkeeper had to pay the Councilman 1000 gold coins, despite the fact that the Councilman's admitted his bet was taken from the treasury.
The Councilman then called the Sheriff, raided the shop, planted a bag of marijuana, had the Shopkeeper arrested and hauled off, then he and the Sheriff had their way with the Shopkeeper's wife and teenage daughter. The Shopkeeper was made to pay a fine of 5000 gold coins to get out of jail and resume business, and the council passed a 20% sales tax anyway.
After that, the Shopkeeper always reminded himself, "Never brag about your Merit and Skill, or a Corrupt Politician will clean out your till!"

Posted by: wulf_karl | September 21, 2010 4:41 PM | Report abuse

In the case of GM, the government should have added a condition to the bailout that GM would divest of its automotive holdings and immediately become a mission impossible agency for the government. Why? Since it is implausible that they will ever profit enough from autos again to repay the $40+ billions they owe to the taxpayers.

Posted by: dcprice | September 21, 2010 7:47 PM | Report abuse

Mr Lane; all,

PLEASE show me in The Constitution of The United States where it says that the federal government has either the responsibility OR the lawful power to spend even a dime to "bail out" a privately owned automobile company, especially since the federal government treated the secured debtors BADLY at least & CRIMINALLY at worst.

save your time looking, as what was done was done IN VIOLATION OF The Tenth Amendment to the Bill of Rights. - NO state has ceded such powers to the central government. thus any such action on the part of the POTUS/Congress is both UNLAWFUL & UNCONSTITUTIONAL!

it's CRIMINAL activities like that DUMB-bunny action by BHO (and by his coven of Chicago thugs, fools, haters & slimy, shyster lawyers) that has given rise to the Tea Party
AND
which will cause the END (perhaps forever) of the DIMocRATS Party as a major player in the American political process.

the more i learn about BHO & the DIMocRATS "leadership", that infest our Capitol City, the better i like poisonous spiders, slugs, pit vipers & cockroaches.

just my opinion.

yours, TN46

Posted by: texasnative46 | September 23, 2010 5:25 PM | Report abuse

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