New Lessons from Old Arguments on the Chrysler and GM Bailouts

Former White House economic advisor Larry Summers says he was not told about General Motors’ ignition switch problem during the 2009-10 auto bailout. Considering how lightly GM treated the problem with its Chevrolet Cobalt and Saturn Ion over the last thirteen years, there’s no reason to think the automaker would have bothered Summers with it.

That gets to the lingering problem with GM’s culture, which should have been treating recalls more seriously from the Nader days on. Fiat-Chrysler CEO Sergio Marchionne told a Brookings Institute Economic Studies forum on the bailout in Washington Wednesday, “I think GM should have gotten the same treatment” as Chrysler. Which means far less Troubled Asset Relief Program money, on the order of $7 billion instead of $50 billion, and let the company do all its own restructuring.

“It would have made them better people,” Marchionne said.

The sweater-clad Marchionne was featured at the Brookings forum, which I watched live from a webcast. Also attending, along with Summers, were former auto task force chief Steven Rattner, task force member Harry Wilson, the Center for Automotive Research’s Sean McAlinden, plus a bevy of economists and Brookings suits, CNBC’s Phil LeBeau, and Reuters’ Paul Ingrassia, all wearing suits.

Meanwhile, news from Detroit had CEO Mary Barra looking to restructure GM’s legal department and “break down” the silos as the company issued yet another recall.

Brookings held the forum to assess the auto bailout, extending an argument that began more than five years ago. If you disagree with me that the bailouts of GM and Chrysler were necessary to avoid an all-out depression, you won’t be moved by Marchionne’s assertion that no international financial institution had the wherewithal in 2009 to be debtor-in-possession of either GM or Chrysler, and that their failure would ultimately have led to the failure of the Ford Motor Company because of a supply chain collapse. You’ve heard it all before, because that much hasn’t changed.

Despite the presence of a Department of Energy official in Brookings’ D.C. audience, one who was there to promote a book due early next year on the global auto industry, no one spoke about Ford’s $7.9 billion DOE loan to develop fuel-efficient cars. Would Ford have received that important lifeline late in the last decade if GM and Chrysler were gone?

Marchionne told the DOE official that he sells the Fiat 500e electric car because of the California mandate, but “I hope you don’t buy it because every time I sell one, I lose $14,000.”

He wants to end the two-tier wage structure with blue-collar workers that came from the ’09 bailouts, because “we don’t have two classes [of workers] in my shop.”

In an earlier, more general discussion about the future of manufacturing in the United States, Rattner pointed out that a blue-collar worker in Chattanooga, Tennessee, costs Volkswagen $27 per hour in wages and benefits, versus $67 per hour for a VW worker in Germany. Tennessee’s incentives to bring the plant to Chattanooga cost the state $288,000 per employee, he said, which raises the question of how much more Tennessee would get back in income and sales taxes if its politicians hadn’t lobbied against a UAW representation vote.

Early in the forum, Cliff Winston of Brookings asserted that retaining a homegrown auto industry is no longer important. There’s no growth in the business and, in fact, the imminent arrival of autonomous cars will put an end to car ownership anyway.

“People don’t buy a car every year…in fact, I buy one every thirteen years, because I drive Toyotas,” Winston said, looking very pleased with himself before amending his brand of choice to Porsche.

Marchionne later accused Winston of working for the foreign auto manufacturers association. He said that UAW workers and their new-age attitude were the key component of Chrysler’s success since 2009. Today, he would not hesitate to build a new Chrysler factory in the United States. “Five years ago, I wouldn’t.”

Brookings senior fellow in economic studies, Martin Neil Baily, made more sense than his colleague when he asserted in a discussion of trade policy and exchange rates that “I can’t think of a major global automaker” that doesn’t enjoy the advantages of some economic or regulatory aide from its home country. Governments everywhere tend to do whatever is necessary to keep their local auto factories and their headquarters thriving and hiring people and paying taxes. The pure capitalist notion that the free market could maintain an automotive industry and infrastructure while competitors from Japan or South Korea or Europe or China enjoy cooperation with their hosting countries is unrealistic.

Nevertheless, we came much closer to losing Chrysler than Rattner’s successor, Ron Bloom, admitted in a March 2010 interview with me.

“Treasury made a clear decision who to support as a child and who to put in a life-support ward,” Marchionne said Wednesday. “Some of my private parts were connected to that life-support.”

Rattner admitted that the Treasury Department came very close to letting Chrysler fail. Rattner was “mildly” in favor, Summers was in favor, and Wilson was against the Fiat-Chrysler deal, Marchionne said. Rattner then told Marchionne that it was GM, not Treasury, that rejected a deal to combine the two automakers.

“Nobody wanted Chrysler at the time,” Marchionne replied. “You’re breaking my heart.”

GM didn’t want Chrysler, Rattner said, because it was trying to cut its brand lineup in half from eight.

Now, five years later, Fiat-Chrysler has outlined its second five-year plan, which has its share of problems and missteps. But meanwhile, corporate culture has been transformed, market share is back to pre-Great Recession levels, and there are no recall scandals. Perhaps Sergio Marchionne is right: GM should have been treated like Chrysler.

Hillboy
I think GM should have been allowed to fail . Then there was one .

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