Articles

Obama's Public-Equity Record

May 09, 2012

President Barack Obama's re-election organization is spending a lot of time attacking Mitt Romney over his careers in venture capital (investing in start-ups) and private equity (investing in troubled or failing businesses).

To reporters at Bloomberg Businessweek, Obama senior campaign adviser David Axelrod recently ripped Mr. Romney for "leveraging companies with debt, bankrupting companies and making money off of those bankruptcies . . . [that] cost jobs and certainly wages and benefits."

And an Obama campaign briefing paper says "Romney closed over a thousand plants, stores and offices . . . cut employee wages, benefits and pensions . . . laid off American workers and outsourced their jobs to other countries."

The president is guilty of the same alleged sins.

The Obama administration, after all, forced General Motors and Chrysler into Chapter 11 bankruptcy in 2009 and then capriciously ordered thousands of local dealerships closed.

The auto industry bailout cost lots of Americans their jobs. GM employed roughly 252,000 workers in 2008. Now it has 207,000, with 131,000 of them working in foreign plants. The Detroit Free Press recently noted that fewer Americans work at Chrysler than did before the bankruptcy. Based on data from the National Automobile Dealers Association, I estimate that as many as 100,000 Americans lost jobs at the companies' dealerships.

Mr. Obama's auto industry bailout plan imposed cuts in wages and benefits for current and future workers at both GM and Chrysler. And he loaded up both companies with debt they can never repay. The bailouts cost $80 billion; $51 billion is still outstanding and $24 billion may never be recovered, according to the Treasury Department's latest report. As GM's profits stall, its stock languishes at a level less than half that necessary to recoup Mr. Obama's investment of taxpayer dollars in the company.

The president's actions have produced big bucks for a foreign business. Last month, Fiat reported that, powered by its U.S. Chrysler subsidiary, profits were up tenfold the past year. Without Chrysler's earnings, Fiat would have lost money.

Fiat is likely to deploy those profits in expanding its world-wide operations, even as it's still unclear if it will deliver on its promise of billions in technologies for fuel-efficient vehicles in the U.S.

Mr. Obama also shifted production—and jobs—overseas. As part of the administration's restructuring, GM will increase production in China, Mexico South Korea and Japan—almost doubling the number of vehicles it makes in those countries, according to a confidential report by the company to Congress in May 2009 (obtained by the Detroit News). Many of those cars will be imported into the U.S.

There are differences between Mr. Romney and Mr. Obama. Mr. Romney rescued companies with private money collected from investors including union pension funds, college endowments and private individuals. He had to go through the normal process of laws and courts. His principal focus was on long-term growth for companies in which he invested his company's reputation and money. And he had to make a profit to be successful.

Mr. Obama's story is very different. The auto industry was bailed out with taxpayer money. The president restructured GM and Chrysler by fiat and then forced them into bankruptcy, presenting the courts with a fait accompli.

The president wanted the auto industry to survive, but he also wanted to reward political allies—so he gave 20% of General Motors and 55% of Chrysler to the United Auto Workers union. He stood by as the UAW forced the closure of a plant in Moraine, Ohio, where workers had joined a rival union.

The secured creditors of GM and Chrysler—including retirees, pension funds and endowments—had their investments virtually wiped out by the president's plan. Though taxpayers will never get all their money back, the president still calls it all a big success.

If the auto industry bailout is the best Mr. Obama can do, Republicans should take heart. Because matched against his overall record of presiding over high unemployment, trillion-dollar annual deficits, and a growing number of Americans in poverty and on food stamps, the bailout is not the political game changer Team Obama believes it is.

This article originally appeared on WSJ.com on Wednesday, May 2, 2012.

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