Obama Did Not Save the Auto Industry. He put GM Under and Sold Chrysler to the Italians.

Eli,

Obama did not save the auto industry. He put GM and Chrysler into bankruptcy and then sold Chrysler to an Italian company, Fiat.

Since  the mid 70's US auto sales have been between 10 and 20 million units per year. In the recession years of 1980 and 2009 sales fell to 10 million units. While the 2009 downturn was severe, it wasn't Obama's favorite word: Unprecedented.

Source: Wolfram Alpha

What did change between 1980 and 2009, for GM, was its US market share. Here's the way I look at it. Every day consumers decide which car they want to buy. And for the past 50 years consumers have said, "something other than GM." That's 10 to 20 million purchase decisions every year times, let's call it $30,000 per car, or $30 to $60 billion per year. The decision to interfere in those individual purchase decision is what I like least about bail outs. In essence the government substitutes its judgement for the individual.

Source: Ward's Auto Data

GM has about 20% market share, where's the rest? Ford is 16%, Toyota 13%, Chrysler 11%, Honda 9%, then a whole bunch of others. But GM, Ford and Chrysler are American you may say, so they deserve special treatment. Maybe. Chrysler used to be owned by the Germans, remember Daimler Chrysler, and is now owned by Fiat. The Japanese and German auto companies have manufacturing plants in the US, so in that sense they are as American as GM and Ford and Chrysler.

Source: Ward's Auto Data

At the cyclical peak in 2007, GM and Chrysler comprised 36% of the US auto market. Obama didn't even save half of the auto industry. Arguably he saved the most inefficient producer(s). Bailing out GM and Chrysler is like supporting Blackberry because it used to have high market share, but now consumers prefer Apple and Android. It's like saving the Black and White TV market when everyone wants color. It's like saving the bank teller industry when consumers prefer ATMs.

According to the Bureau of Labor Statistics, the US auto industry employs about 670,000 in auto, auto body and trailer and auto parts manufacturing. The numbers include white collar workers who work at manufacturing concerns. Most of the workers are in auto parts.

Source: BLS

How many does GM employ? At the end of 2011, about 77,000 in the US, of which, 29,000 were salaried and 48,000 were hourly. In 2006 GM had about 152,000 North American employees. The comparison is not fair since the 2006 amount is total North American headcount, which includes Canada and Mexico, and also includes some units not counted in 2011. But the trend is the same. Even after the bailout, headcount is lower, much lower.

GM and Chrysler are not the auto industry. Not even close.

Here's what Rick Wagoner said about GM going into bankruptcy (From "Overhaul," by Steve Rattner, Obama's auto czar). "Bankruptcy would sink the business by scaring off customers." GM's market share had declined from 50% to 20% without the threat of bankruptcy. I'd remind Wagoner something else was scaring off customers long before the recession hit. Secondly, GM is 20% of the industry, not the industry, and what would customers have done? Buy something else. What would competing auto makers have done? Hire more workers to handle the increased demand.

What did Obama do? He put GM in bankruptcy. He put Chrysler into bankruptcy. He sold Chrysler to the Italians. He fired workers. Since the end result is possibly the same thing as would have happened if Obama had ignored the whole issue, why am I unhappy with the intervention?

It put taxpayer money at risk, and the Government should not play venture or vulture capitalist. This is a centuries-old argument, but the long experience teaches us the Government is a poor capitalist. Second, it explicitly says to consumers, "Your choice has been wrong, and will we decide what is best for you." For 50 years consumers have been telling GM, we prefer something else. Obama's response: Too bad. Eat your peas. Third, it made the car companies political entities. Obama decries Citizen's United, but somehow thinks the direct intervention into private business that will be a source of political patronage and votes is a good thing? Fourth, it is unfair to the 400,000+ non GM and Chrysler auto workers. Last, it makes it more likely others will ask for government support. Which is bad for consumers. 10 to 20 million purchase decisions are distorted to benefit less than 100,000. How is that fair? How is that playing by the same rules?

Bill