DETROIT — Ten years ago, the domestic auto industry was near-collapse, with General Motors and Chrysler teetering on the abyss of actually going out of business.
Today as Detroit’s annual North American International Auto Show opens to the public this weekend, the auto industry is flourishing, piling up profits in the billions.
Yet ironically, the federal government, which saved the automakers – and Michigan’s economy — a decade ago, started the year in history’s longest government shutdown.
What a difference a decade makes.
The government shutdown wasn’t a good thing for anybody, from the families of the workers missing paychecks to the tourists missing their opportunity to see the national parks, or the great Smithsonian museums in Washington.
But it might be good to remind ourselves that if the auto companies had been allowed to fail, things would have been worse.
Much, much worse.
Ten years after the industry’s near-meltdown, as thousands flock to the auto show, it might be a good idea to remind ourselves just how close we came to total disaster. It may still be hard to believe, but General Motors and Chrysler were close to going out of business in the fall of 2008.
Thanks to the earlier bank and subprime mortgage crises that destroyed financial giants like Lehman Brothers and Merrill Lynch, there was no way the automakers could borrow the money they would have needed to stay in business.
Ford Motor Co. was in somewhat better shape, having borrowed to restructure itself earlier. But according to a study by the Ann Arbor had GM and Chrysler been forced to topple into un-cushioned bankruptcy, Ford might well have gone too.
Why? “They all depend to a large extent on the same suppliers,” Kristen Dziczek, vice-president of Industry, Labor and Economics at the Ann-Arbor based Center for Automotive Research (CAR) told me.
Had the Detroit Three gone belly up, pieces of those companies would have probably survived as part of other automakers. But a CAR study said in a worst-case scenario, this could have meant a loss of between one and three million jobs. That would have certainly worsened the Great Recession — and devastated Michigan.
That didn’t happen, because two presidents, the outgoing George W. Bush, and the incoming Barack Obama, saved the auto industry by guiding those two companies through “soft landing” bankruptcies which allowed them to keep making cars.
When all was said and done, the U.S. government spent $80.7 billion to bail out General Motors and Chrysler. However, taxpayers recovered $70.5 billion by the end of 2014.
That meant Washington “lost” a net of $10.2 billion on the bailout—but that is far less than the $50-$60 billion CAR estimates the government would have lost in tax receipts in the first year alone if Chrysler and Ford had been allowed to fall apart.
President Obama took an active and unusual role in managing the bailout, pushing Chrysler into a “shotgun marriage,” with Fiat, and ousting GM President Rick Wagoner.
The bailout worked –possibly better than most expected. Today, the “Detroit Three” automakers are all flourishing. Leaner, meaner and with fewer employees —but quite profitable. Ford alone had profits of $7.6 billion in 2017. General Motors took a technical loss that year, but reported pretax profits of $12.8 billion. President Obama’s policies had, essentially saved their industry.
But a decade later, the government that saved the automakers was shut down as the year began, as a result of President Donald Trump insisting on Congress appropriating billions for his highly controversial “wall” between the United States and Mexico.
The politics of how that will play out are still uncertain – but it would seem that Michigan Republicans are on shaky ground.
For them, last fall was the most devastating election they’ve had in years. Republicans lost all the major offices at the top of the ticket, plus two seats in Congress and five in each house of the legislature.
Polls show that voters blame Trump for the shutdown by a two-to-one margin. USA Today found that 54 percent of Americans don’t want the government to build a wall across the border.
Politically, this was bad, but not unexpected. Last fall, Michigan Attorney General Bill Schuette ran for governor as the President’s man, and Trump endorsed him in a tweet, though he did misspell this name. But that didn’t seem to help .
Schuette lost decisively to Democrat Gretchen Whitmer, who racked up more votes that any candidate for governor in Michigan history. She even won Macomb County, the blue-collar area which voted in a landslide for Trump in 2016.
Michigan stunned political observers by giving Trump a tiny, 10,704 vote margin, the first time the state had voted Republican since 1988. Whatever they say publicly, the fact is this:
Few in either party expect Donald Trump – if he runs again – to have much chance of carrying Michigan next time.
