February 20, 2012

As the Michigan primary approaches, claims and counterclaims about President Obama’s rescue of the U.S. auto industry fly. Whoever wins the Republican presidential nomination, we’ll be hearing more of this in the general election, since Obama plans to campaign claiming success. Amid the gusts of rhetoric, keep these realities in mind:

● The U.S. economy was falling off a cliff in the fourth quarter of 2008. No one knew how bad it could get. But it was clear that, if the car companies went bankrupt, they would need government financing to restructure and avoid liquidation. And no U.S. president would have stood by and allowed them to liquidate. Proof: Republican George W. Bush extended emergency loans to General Motors and Chrysler, keeping them alive until Obama’s term began.

So it’s admirably consistent, but also unrealistic and disingenuous, for former Pennsylvania senator Rick Santorum to say now that “the government should not be involved in bailouts, period,” or that GM and Chrysler would have been “alive and equally as well, or better off, than they are now” minus federal intervention.

● No one can quantify the true costs and benefits of the bailout yet. They may never be knowable.

Yes, Chrysler and GM are profitable today. And yes, they have paid back most of the $80 billion the federal government committed to them up front. But it’s a near-certainty that the government will lose some money on the deal. Why do you think they call it a bailout?

The long-term cost-benefit analysis depends on a dizzying array of hypotheticals and counterfactuals.

If GM and Chrysler had gone under, Ford and the U.S. plants of foreign automakers would have suffered, too. Auto-dependent states and localities from Michigan to Mississippi might have faced higher welfare costs and tax-base implosion.

On the other hand, there is the opportunity cost of using government funds, much of it borrowed, to overrule the marketplace’s negative verdict on GM and Chrysler. Other uses of the money might have had greater long-term social benefits. Without competition from GM and Chrysler, surviving automakers might have flourished as never before, once they recovered.

● Though some bailout was politically inevitable, it does not automatically follow that the one we got was economically optimal.

The president’s own advisers were deeply divided over whether to keep Chrysler alive to compete with GM, Ford and the rest. Chrysler is profitable today — at an upfront cost to taxpayers of $1.3 billion. But to some extent its success means fewer profits, and jobs, elsewhere.

Unquestionably, the Obama administration gave its political allies in the United Auto Workers a better deal than the union would have gotten from a private-equity firm or a Republican president. UAW workers accepted layoffs and lower wages for future hires — but no current wage reduction, like those accepted by workers in many other distressed industries.

The bailout left union pension benefits basically untouched, despite pleas for relief from GM management. Unfunded pension liabilities weigh on the value of GM’s stock — a quarter of which is still owned by the U.S. Treasury.

Oh, and Congress also played politics, intervening against cuts to GM’s and Chrysler’s overgrown dealership networks.

Mitt Romney has been pilloried for his November 2008 op-ed in the New York Times, “Let Detroit Go Bankrupt.” In fact, he’s right to say, as he does now, that the op-ed outlined a course of action similar to the one Obama eventually pursued. Romney even suggested, “The federal government should provide guarantees for post-bankruptcy financing,” a recognition that no private-sector source of such funding existed.

The Republican founder of Bain Capital would have been tougher on the union’s wages and pensions, so he has a right to denounce Obama for coddling “union bosses.”

But Romney goes too far in accusing Obama of “crony capitalism” for letting the UAW retiree health-insurance funds take stock in the companies. Actually, this was a union concession, since stock is far riskier than the cash to which they were otherwise entitled. Also, the union now has a stake in the companies’ success.

Romney says now that the federal government never should have taken stock in GM, but that choice might have been more cost-effective than piling more debt on the company, and it was at least consistent with Romney’s own call for government-backed financing.

So Romney is claiming credit for thinking up the approach Obama took, and condemning the precise way in which he executed it. In each case, he has a point; but in each case, he’s stretching it.

And so we have a contest among Obama’s boasts, Santorum’s denials and Romney’s quibbles. Somewhere in the middle lies the truth about the auto bailout.

lanec@washpost.com