President Obama Hails Auto Industry Recovery in Michigan

The president says taxpayer money for auto bailout will be recouped.

July 29, 2010, 2:47 PM

July 30, 2010 -- Saying that his critics will now have to acknowledge that they were wrong, President Obama traveled to Michigan today to tout the revival of the auto industry after his administration's controversial bailout of General Motors and Chrysler last year using tens of billions of taxpayer dollars.

In his shirt sleeves, Obama gave a rousing defense of the bailout to 1,500 workers at a Chrysler plant in Detroit. While their future was in doubt a year ago, he said, they have proven the naysayers wrong and the industry is on the upswing.

Last year's dire circumstances forced his administration into a corner, he added, "with very few choices."

"If we had done nothing, not only were your jobs gone, but supplier jobs were gone, and dealership jobs were gone, and the communities that depend on them would have been wiped out," he said.

He credited auto workers with playing a key role in bringing their industry back.

"You are proving the naysayers wrong, all of you," he said. "They thought it would be impossible for your company to make the kind of changes necessary to restore fiscal discipline and move towards viability.

"Today, for the first time since 2004, all three U.S. automakers are operating at a profit; first time in six years."

Obama's trip included stops at the Chrysler plant and a GM assembly plant in the Motor City area.

At the GM plant, Obama climbed into a black Chevy Volt -- first checking with his Secret Service agent to make sure he was allowed to drive -- and drove it about 10 feet on an assembly line.

Obama exited the vehicle with a broad smile: "I'm telling you guys, pretty smooth," he said.

A White House spokesman said it has been "awhile" since the president has driven himself in a car.

The GM plant produces the new Chevrolet Volt rechargeable electric car and is one of nine plants that the company will keep open during the standard two-week summer shutdown. The Chrysler plant makes the new Jeep Grand Cherokee and just added a second shift and 1,100 new jobs.

Obama will travel to a Ford plant in Chicago next week that recently added 1,200 new workers as a result of a loan from the Department of Energy.

The president and his administration have consistently defended their decision to bail out the auto industry, calling it a difficult but necessary move in order to keep the domestic automakers from falling over the economic cliff and save jobs.

The White House said Thursday that the auto bailout "certainly saved communities from economic devastation."

Both GM and Chrysler slashed labor costs and dealerships when they went through bankruptcy and have come out the other end more profitable despite lower sales rates. Analysts say there is no doubt that the bailout rescued the companies.

This year is on track to be the strongest year for job growth in the auto industry since 1999, according to government figures.

The auto industry shed 334,000 jobs the year before GM and Chrysler went through a structured bankruptcy but has gained 55,000 jobs in the year since, a report released by the White House Thursday concluded.

Analysts estimated that about 1.1 million jobs could have been lost if the automakers had been liquidated.

"The president didn't think that walking away from a million jobs in these communities made a lot of economic sense," White House spokesman Robert Gibbs said.

Because of the bailout, Gibbs added, the auto industry "looks fundamentally different in its progress than we did just a year and a half ago."

Detroit may seem an unlikely place for Obama to tout job creation. Michigan's unemployment is the second highest in the nation, at 13.2 percent.

The White House said Thursday there is still a long way to go before the region bounces back but it continues to work with auto workers and their communities to focus on their needs and concerns.

"We can't be happy with the unemployment rate in the state of Michigan at over 13 percent or in Detroit [at] 20 percent," said Ed Montgomery, head of the White House Council on Automotive Communities and Workers. "But these are providing some needed resources to help autoworkers and others in the community begin the process of finding jobs."

As of June 2010, the federal government had provided about $85 billion to GM, Chrysler, their financing arms and other industry bailout programs, a decision that was controversial when it was first announced last year. GM received $50 billion in government money, GMAC $17 billion, Chrysler $12 billion, $5 billion for a program for auto suppliers, $1.5 billion for Chrysler Financial and $650 million for an auto-warranty program.

Both GM and Chrysler went through bankruptcy in the spring of 2009. When GM emerged from bankruptcy, the Treasury Department converted the $50 billion investment into a 61 percent stake in the new GM: $2 billion in preferred stock, and a $7 billion loan. GM has since paid back the $7 billion loan.

Because of the $12 billion given to Chrysler, the federal government holds a 10 percent stake in the automaker and a $7 billion loan to them. The newly structured Chrysler -- after the bankruptcy -- paid back about $2 billion to satisfy a portion of the loan but Treasury does not expect a significant return overall.

Ron Bloom, Treasury Secretary Tim Geithner's senior adviser on the auto industry, could not say Thursday exactly how long the federal government would have an ownership stake in the companies.

"We don't like having this investment but we're not going to sell it at a fire sale," he said.

All told, the Treasury Department has estimated that it could lose $28 billion on the bailout and Obama administration watchdog Neil Barofsky recently said that when they were pushing the automakers to cut dealerships, the government failed to take into account that 100,000 jobs could have been lost from the closings.

But the White House is painting a much rosier picture overall, highlighting that if there had been no government intervention, the job losses would have been higher and the economic forecast for the region would have been dire.

"A million people leaving their job would have had a multiplying economic effect," Gibbs said. "That's a million more people that would have been on unemployment benefits.

"When you walk into these communities, it's not as if these communities have a lot of other businesses, because they're built around these plants."

Analysts, including former John McCain campaign adviser Mark Zandi of Moody's, agreed that the government intervention was vital.

In a new report entitled "How the Great Recession Was Brought to an End," Zandi and fellow economist Alan Blinder wrote, "TARP money was also vital to ensuring an orderly restructuring of the auto industry at a time when its unraveling would have been a serious economic blow."

In addition, Moody's economists Sophia Koropeckyj and Michael Helmar said in a separate report that the country would have lost a half a million more jobs if the automakers had gone under.

In spite of the industry's job growth and the automakers' ongoing return to profitability, some members of Congress who opposed the bailouts still believe that the administration acted with a "heavy hand" in bailing out the automakers.

"I felt like the decision to step into the companies the way the government did was heavy-handed and inappropriate and I said so at the time," Sen. Bob Corker, R-Tenn., said in an interview with ABC News. "I think the restructuring that took place was right along the lines that I suggested. I just felt that the companies themselves should have done that."

Obama Pledges to Recoup All Taxpayer Money Put Toward Auto Industry Bailout

Corker said no one can say with certainty what would have happened if the government had not bailed out the automakers, but he is nevertheless pleased that job growth is once again on the rise.

"I don't think we'll ever know what would have happened," Corker said, "but certainly as an American when I see people employed with good-paying jobs, am I happy? Yes. The government stepping in, telling a CEO to resign, changing the board. Those are things that I don't think Americans believe in. But did the restructuring help the companies? Absolutely."

Obama said Thursday that the government will recover all of the taxpayer money used in the auto industry bailout last year and held it up as an example of "a good story" in his administration's economic efforts.

The White House said today that that pledge covers the money that the Obama administration put toward the auto industry, not the $25 billion spent under the Bush Administration in late 2008.

"The money that this administration invested, about $60 billion, we believe we're on the path to recouping all of that," Gibbs said.

This is Obama's second trip to Michigan in two weeks. On July 15, he traveled to Holland to tout the groundbreaking of a new advanced battery plant that he said would not just stimulate the local economy but also be a key element to turning around the U.S. economy and creating jobs that have recently been heading overseas.

"This is about more than building a new factory," the president said in front of construction equipment at the plant's future site in Holland. "It's about building a better future for this city, for this state, and for this country."

The new Michigan plant will open as a result of a Recovery Act advanced battery and electric vehicle award.

ABC News' Sunlen Miller contributed to this report.

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