The Auto Bailout Bust

Obama’s rescue of Chrysler and General Motors unpopular with voters, creditors, and GM management
AP Images

AP Images


President Barack Obama has made the auto bailout a centerpiece of his reelection campaign, using it to bash Republican nominee Mitt Romney. But the tactic may backfire as the general election heats up, public opinion surveys suggest.

Recent polling from Rasmussen indicates that 59 percent view the bailouts as a “failure” and only 44 percent think the bailouts were “good for America.”

The administration has already written off $7 billion in taxpayer losses in the American takeover of Chrysler and General Motors; those losses are expected to climb as high as $23 billion—27 percent of the $85 billion spent on the bailout.

While the bailout is widely credited with saving the two companies, increasing taxpayer losses have made it nearly as unpopular in 2012 as it was when Obama was elected. More than half of Americans still disapprove of the auto bailout compared with 61 percent in 2008.

That has not stopped Obama from using the bailout as a bludgeon against Romney, who backed bankruptcy measures, in a number of campaign speeches.

“We could have just kicked the problem down the road. The other option was to do absolutely nothing and let these companies fail,” Obama told the United Automobile Workers union in February. “And you will recall there were some politicians who said we should do that. Some even said we should ‘let Detroit go bankrupt.’”

The line drew a chorus of boos from the crowd and Obama has used the talking point often in his recent campaign addresses. He has deployed the line in a number of speeches in front of friendly crowds, despite the surprising lack of enthusiasm among Democrats for the bailout.

Obama’s job approval ratings among Democrats remain at nearly 85 percent, according to RealClearPolitics.

That is 20 points higher than the 63 percent of Democrats who support the auto bailout.

Obama is using the talking point as a targeted message to interest groups, rather than a broad appeal to his overall base, bailout experts say.

“The reason Obama likes it is because labor likes it,” one bankruptcy expert said. “The administration went in and took UAW and pulled them up.”

The administration handed $85 billion to GM and Chrysler and guided them through reorganization. Obama took on the role of bankruptcy court and bumped the unions to the front of the line, handing them control of Chrysler, while preserving pay and benefits at General Motors.

“They came in and forced these companies into pre-packaged bankruptcy where unions were made whole and creditors were squeezed out,” the expert said. “In normal bankruptcy they don’t rearrange stakeholders rights willy-nilly…there’s no way those union contracts would have been untouched.”

Labor is not the only constituency to which Obama has tried to appeal by championing the bailout.  “After three decades of inaction, we’re gradually putting in place the toughest fuel economy standards in history for our cars and pickups,” Obama said in the same February speech. “That means the cars you build will average nearly 55 miles per gallon by the middle of the next decade—almost double what they get today.”

Obama tied the bailouts to strict environmental standards that have led to increasingly efficient cars, an achievement he has used to woo green advocates. The move has affected more than just the environment, establishing “dangerous” legal precedents, according to some legal experts.

The fuel-mileage regulations are expected to drive up vehicle prices by $3,200 and keep consumers out of car lots, according to the National Auto Dealers Association, which sued to block the regulations. A Washington D.C. Appeals Court tossed the suit, ruling that only manufacturers could sue for damages associated with the expensive rules.

“This is a great incentive for cronyism,” an attorney familiar with the regulations said. “The manufacturers colluded with the feds and they pushed these costs onto car dealers and consumers; the government had its first taste of cronyism and learned that if they can bully enough stakeholders and companies, they can get away with it.”

Auto executives hailed the bailout as a lifesaver in 2008, but are increasingly uneasy about the government’s ownership in the two companies. While the government liquidated a number of its shares in GM during its record-setting stock offering in 2010, it has retained partial control of the company.

“GM’s executives have wanted the government out for a while now … it’s a huge PR liability for them—they hate the ‘Government Motors’ stigma,” said Edward Niedermeyer, editor-at-large of “The government can’t get out now, they don’t want to take an even bigger loss on the bailout.”

GM’s stock price has dropped about $10 per share since its IPO, meaning any sale would increase the taxpayer’s multi-billion dollar losses in the bailout.

Niedermeyer said the administration might wind up its involvement in GM even if it means higher losses. Timing, he added, will play a key role in that decision.

“They’ll wait until after the election before they act,” he said.

Bill McMorris   Email Bill | Full Bio | RSS
Bill McMorris is a staff writer for the Washington Free Beacon. He joins the Beacon from the Franklin Center for Government and Public Integrity, where he was managing editor of Old Dominion Watchdog. He was a 2010 Robert Novak Fellow with the Phillips Foundation, where he studied state pension shortfalls. His work has been featured on CNN, Fox News, The Economist, Colbert Report, and numerous print publications and radio stations. He is a 2008 Cornell University graduate and lives in Alexandria, Va with his wife Teresa and daughter Olivia. His Twitter handle is @FBillMcMorris. His email address is

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