President Obama’s phony accounting on the auto industry bailout
“Chrysler has repaid every dime and more of what it owes American taxpayers for their support during my presidency.”
— President Obama, June 4, 2011
This post has been updated.
With some of the economic indicators looking a bit dicey, President Obama traveled to Ohio last week to tout what the administration considers a good-news story: the rescue of the domestic automobile industry. In fact, he also made it the subject of his weekly radio address.
We take no view on whether the administration’s efforts on behalf of the automobile industry were a good or bad thing; that’s a matter for the editorial pages and eventually the historians. But we are interested in the facts the president cited to make his case.
What we found is one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.
Let’s look at the claims in the order in which the president said them.
“Chrysler has repaid every dime and more of what it owes American taxpayers for their support during my presidency — and it repaid that money six years ahead of schedule. And this week, we reached a deal to sell our remaining stake. That means soon, Chrysler will be 100 percent in private hands.”
Wow, “every dime and more” sounds like such a bargain. Not only did Chrysler pay back the loan, with interest — but the company paid back even more than they owed. Isn’t America great or what?
Not so fast. The president snuck in the weasel words “during my presidency” in his statement. What does that mean?
According to the White House, Obama is counting only the $8.5 billion loan that he made to Chrysler, not the $4 billion that President George W. Bush extended in his last month in office. However, Obama was not a disinterested observer at the time. According to The Washington Post article on the Bush loan, the incoming president called Bush’s action a “necessary step . . . to help avoid a collapse of our auto industry that would have had devastating consequences for our economy and our workers.”
Under the administration’s math, the U.S. government will receive $11.2 billion back from Chrysler, far more than the $8.5 billion Obama extended.
Through this sleight-of-hand accounting, the White House can conveniently ignore Bush’s loan, but even the Treasury Department admits that U.S. taxpayers will not recoup about $1.3 billion of the entire $12.5 billion investment when all is said and done.
The White House justifies not counting the Bush money because, it says, that money was completely spent when Obama was making a tough political decision on whether to extend another loan. In other words, a decision to do nothing at the time would have resulted in the immediate loss of the $4 billion that Bush had extended.
This is chicanery. Under the president’s math, Chrysler paid back 100 percent of Obama’s loan and less than 70 percent of Bush’s loan. A more honest presentation would combine the two figures to say U.S. taxpayers got back 90 percent of what they invested. In fact, that is how the Treasury and other administration officials frequently portray it; it is just when Obama speaks that the numbers get so squishy.
The White House justifies saying that Chrysler will be in 100 percent “in private hands” because there will no longer be government ownership once Fiat completes its purchase of the U.S. stake. For the record, the United Auto Workers will own 46 percent of the company.
“All three American automakers are now adding shifts and creating jobs at the strongest rate since the 1990s.”
The White House says the data to back this claim concerning the Big Three automakers is not public information. The official Bureau of Labor Statistics data refers to the entire auto industry — including foreign auto manufacturers, auto parts manufacturers, auto parts dealers and auto dealers. If you look at the data, the 113,200 jobs added between June 2009 and May 2011 amounts to about a 5 percent increase — from a rather low base.
UPDATE, 10:45 AM: Yen Chen, automotive business statistical analyst at the Center for Automotive Research, says CAR's analysis of Big Three auto data shows this statistic is correct. The Detroit Three are expected to add 10,000 hourly and 5,000 salaried workers this year, from a base of 115,805 hourly workers and 56, 432 salaried workers. That's an increase of about eight percent in each case. More than 16,000 hourly workers were added in 1991, but from a much higher base--440,000-- and 10,000 were also added in 1995, when there were 433,000 hourly workers. Meanwhile, salaried workers have been on a steady decline since 1990 (when the big Three employed 157,000).
“GM plans to hire back all of the workers they had to lay off during the recession.”
This is another impressive-sounding but misleading figure. In the five years since 2006, General Motors announced that it would reduce its workforce by nearly 68,000 hourly and salary workers, creating a much smaller company. Those are the figures that generated the headlines.
Obama is only talking about a sliver of workers — the 9,600 workers who were laid off in the fourth quarter of 2008. About 4,100 were sent home for a few weeks. Another 5,500 were put on indefinite leave, meaning there were no jobs at the time for them. All but 1,000 have returned to work, and the rest should be back at work by year’s end, according to GM spokesman Greg A. Martin.
“In the year before I was President, this industry lost more than 400,000 jobs, and two great American companies, Chrysler and GM, stood on the brink of collapse. Now, we had a few options. We could have done what a lot of folks in Washington thought we should do — nothing.”
This is quite a straw man — that many people wanted to do nothing. It was never so black and white. The debate was over the right course to take in the bankruptcy process.
The Wall Street Journal published Monday an interesting conservative critique of the government’s intervention by David Skeel, a law professor at University of Pennsylvania. Skeel says that the revival of the auto industry “is a very encouraging development,” but “to claim that the car companies would have collapsed if the government hadn’t intervened in the way it did, and to suggest that the intervention came at very little cost, is a dangerous misreading of our recent history.”
To support the claim that “a lot of folks” wanted to do nothing, the White House referred us to statements by the House minority leader, John Boehner (R-Ohio), and Sens. Richard Shelby (R-Ala.) and Jon Kyl (R-Ariz.).
We do not read Boehner’s quote that way; in this 2009 comment, he is questioning the administration’s approach while saying, “The success of our automotive industry is critical.”Shelby and Kyl in 2008 were protesting the use of taxpayer funds by Bush to delay a bankruptcy filing; they preferred immediately putting the companies through the bankruptcy process.
It will be up to historians to decide what the best solution would have been for taxpayers and the auto industry. We can understand why the president wants to portray himself as making a lonely and tough decision. But the debate was not either/or, bur rather what was the best policy to bring the automakers back to financial health.
The Pinocchio Test
The president is straining too hard. If the auto industry bailout is really a success, there should be no need to resort to trumped-up rhetoric and phony accounting to make your case. Let the facts speak for themselves.
UPDATE, NOON: White House communications director Dan Pfeiffer has posted a response to this article.
Watch Obama’s radio address