Obama's GM Numbers Are Not Adding Up

Monday, 13 Dec 2010 08:43 AM

By John Berlau Newsmax

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Before Thanksgiving, President barack Obama and Vice President Joe Biden did a victory lap at friendly venues across the country in the wake of the successful initial public offering of General Motors.

They rattled off a litany of positive statistics that they and an adoring audience attempted to attribute to the $82 billion bailout of Chrysler and GM.

The media treated the IPO and statistics surrounding it as evidence the economy was turning a corner, evidence that would be shot down with the release in early December of the 9.8 percent unemployment rate. But even before the release of this disappointing news, the figures the president cited of jobs added to the auto industry over the past year were suspect in making the case for the bailouts That’s because they include jobs at Toyota, Hyundai, Kia and other foreign automakers with U.S. plants — job growth at nonunion plants that can hardly be attributed to the bailout of the domestic companies.

Since mid-November debut of the IPO, prominent news outlets have erroneously reported that Chrysler and GM have added 75,000 jobs since the bailout.

National Public Radio’s Mara Liasson reported that Obama “said that since GM and Chrysler have emerged from bankruptcy, they’ve created more than 75,000 new jobs.” A story on CNN.com similarly states, “GM — with fellow Michigan-based auto giants Ford and Chrysler — have created more than 75,000 jobs in recent months.” But if you listen closely, this is not exactly what the president says, even though he probably doesn’t mind being misquoted in this instance.

In fact, his statement almost lures readers into making this error. In one sentence he speaks of rescuing GM and Chrysler, yet in the same breath cites job growth figures for the entire automotive sector.

Obama said Thursday, “Since GM and Chrysler emerged from bankruptcy, the industry has created more than 75,000 new jobs.”

Just what did the president mean by “the industry?”

An earlier White House “fact sheet” touting this job growth cited the Department of Labor’s Bureau of Labor Statistics (BLS). And indeed, if one were to look at BLS’s industry category of “motor vehicles and parts” and measure from its low point in May 2009, when there were 626,000 jobs, to July 2010, when 705,000 jobs, this would be a growth of 79,000 (see the figures on the BLS chart here).

The number fell in August to 684,000, and the project number for October is only slightly higher, but that’s still growth of about 60,000, and I’ll cut the White House some slack.

The problem for Obama is, though, whether we’re talking about 60,000 or 80,000 additional jobs, this figure includes U.S. jobs created by all manufacturers — foreign and domestic.

As Sam Foster wrote in the Daily Caller, “That means Toyota jobs, Hyundai jobs, Ford jobs or any other job creation from an automaker so long as they were residing in America.”

And it is of course very good news, as well as a tribute to the quality of America’s labor force, that foreign auto and auto parts makers want to hire here.

The trend seems to be growing, as BMW recently announced it would hire 1000 new workers at its plant in South Carolina. (Amazingly, Ralph Nader is complaining about this, because the $15-per-hour wage is less than what workers are paid in BMW’s native Germany!)

A plausible argument could be made that Ford, which wasn’t directly bailed out, was helped by the bailout assistance to Detroit suppliers.

No such assertion can be made, however, for foreign global automakers that buy and sell all over the world. Plus, it goes against the “we’re No. 1” theme that Obama seems to be stressing on behalf of the bailed-out domestic automakers.

In fact, despite the $82 billion from taxpayers and despite GM’s successful IPO, a look at GM and Chrysler alone still shows a huge net job loss from the bankruptcy. And this does not even count the losses from the rapid closure of car dealers, as well as the likely loss of jobs due to the higher cost of capital as a result of the disparate treatment of “old GM” bondholders in the bankruptcy in favor of the United Auto Workers.

In the one area of White House “fact sheet” that discussed jobs specific to the Big Three, it projects that “in total, the big three will have added as many as 11,000 new jobs before the end of 2010.” But according the book "Overhaul" by Steven Rattner, one of the Wall Street whiz kids who designed the automaker bankruptcy on the Obama administration’s “Team Auto,” GM and Chrysler shed almost 34,000 jobs during bankruptcy. So that’s still 23,000 jobs to break even.

That’s not including the jobs that were shed in the hyper-quick dealership closings.

Some dealers would have and should have been closed in a normal bankruptcy, but Rattner and Team Auto forced 25 percent of GM and Chrysler dealers to close within less than four months.

The National Auto Dealers Association projected that 110,000 jobs would be axed, resulting a loss in total compensation of $100 million. The automakers challenged these figures as too high, but respected special inspector general for Neil Barofsky agreed that “tens of thousands of dealership jobs were immediately put in jeopardy” by the “rapid pace” of dealer closings.

In his report, Barofsky also faulted the administration for not preparing a formal “cost savings estimate” before closing the dealers. Jobs were put at risk, Barofsky wrote, without “any explicit cost savings to the manufacturers in mind.”

The Obama administration designed a restructuring that disregarded two centuries of bankruptcy precedent to massively favor the United Auto Workers over bondholders, many of whom were middle-class retirees served by pension funds.

This abrogation of contracts, prominent scholars say, could discourage lenders from financing businesses due to fear of future politicized bankruptcies. As CEI adjunct fellow Todd Zywicki, professor of law at George Mason University, eloquently put it in a Wall Street Journal Op-Ed: “By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation.”

John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute and blogs at OpenMarket.org. This post was co-authored by CEI Research Associate Andrew Kwiatkowski.

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