Five years on, GM and Chrysler roar past the bailout’s echoes
Five years ago this month, Detroit automakers fanned out across Capitol Hill and much of Washington, warning that without immediate federal help at least one of them would collapse, setting off a chain of dominos that could cost up to 1 million jobs. Many inside and out of Detroit opposed the idea; one potential Republican presidential candidate even wrote an op-ed with the headline "Let Detroit Go Bankrupt." And Congress veered between castigating Detroit for its mistakes and worrying about how to pay for the billions of dollars the companies sought.
Five years later, there's no other word to describe the U.S. auto industry than "thriving." It employed almost exactly as many Americans to build cars, trucks and parts — roughly 822,000, by federal data — last month as it did in October 2008, before the Great Recession closed factories and sent sales plunging. All three Detroit automakers will earn more than $1 billion in profits this year, and thousands of UAW workers at each stand to get sizable profit-sharing bonuses.
Yet the debate over bailout and its effects linger, and for some has never stopped. Within a matter of months, the U.S. Treasury will sell off its last shares of General Motors, closing the books with a loss of roughly $10 billion. Chrysler's future rests on solving a puzzle built into its rescue as a compromise between the government, Fiat and the UAW. And for all that the bailout promised to change, Detroit's profits still lie with the models that made money before the great collapse.
That the bailouts worked for GM and Chrysler has been thanks in no small part to a rebound in new-car sales which has lifted the entire industry. Research firm J.D. Power estimates Americans will spend $30 billion on new cars this month — or about $30,000 per vehicle — and $370 billion in total this year, the highest ever and well above what the industry was drawing in 2008.
Much of that rebound comes from two factors, both driven by Washington. In both bailouts of GM and Chrysler, the companies shed workers and factories, but also vowed to never let their capacity run as slack as it did during the crisis, which depressed prices even as demand fell. While all three automakers have boosted production since 2009, none has built a new plant in the United States — choosing instead to run factories on three shifts or expand old factories as need be. Despite having the same number of workers as they did in 2008, foreign and domestic automakers built more than 1 million vehicles in the United States last month, a new record — with North American factories running at 90 percent capacity, also a new high.
And for all the attention focused on President Barack Obama and his advisors such as auto czar Steve Rattner, the man who may have done more to get the auto industry back is Federal Reserve Chairman Ben Bernanke. By choosing to stimulate the economy through low interest rates and goosing corporate credit sales, Bernanke sparked an ongoing boom in vehicle lending. Due in part to cheap rates, many new cars can cost less on a monthly basis than used cars; and auto sales remain the rare place where buyers with low credit scores can get loans, albeit ones that now can stretch as long as eight years. According to market research firm Experian, total auto lending hit an all-time high this quarter of $782.9 billion, up 15 percent over a year ago.