The President's Remarks on the Auto Industry

The President's remarks on the auto industry were amazing (even without the annotations included below). There represent an arrogance of hope that is should provoke outrage. What are the new standards from which he operates? What particular expertise has he demonstrated in improving any business? Why should the CEO of GM go and not the head of the UAW who is at least as culpable as the CEO in getting GM to where it is today? Bush was criticized (in part correctly) because his strategy in Iraq had "no exit strategy" - what is the exit strategy here? How should we judge whether the President is acting in the national interest or by fiat? Here is his speech with some annotations -

One of the challenges we have confronted from the beginning of this administration is what to do about the state of our struggling auto industry.Is the Auto industry so critical to our future that the government is obligated to do something? In recent months, my auto task force has been reviewing requests by General Motors and Chrysler for additional government assistance as well as plans developed by each of these companies to restructure, modernize, and make themselves more competitive. Our evaluation is now complete. But before I lay out what needs to be done going forward, I want to say a few words about where we are, and what led us to this point.

It will come as a surprise to no one that some of the Americans who have suffered most during this recession have been those in the auto industry and those working for companies that support it. Over the past year, our auto industry has shed over 400,000 jobs, not only at the plants that produce cars but at the businesses that produce the parts that go into them, and the dealers that sell and repair them. More than one in 10 Michigan residents is out of work -- the most of any state. And towns and cities across the great Midwest have watched unemployment climb higher than it's been in decades. Is the unemployment in the Midwest only related to declines in the auto industry - the numbers say no/ The Big 3 share of the total US market went from 70% in 1998 to 53% in 2008. That is a long term problem. At the same time the percentage share in the economy of manufacturing continues to fall. Our economy is changing - does the President propose to try to hold on to share?

The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed. Although most estimates suggest that the legacy costs caused by prior labor agreements increases the costs of American vehicles by a lot. And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations. Rather, it is a failure of leadership -- from Washington to Detroit -- that led our auto companies to this point. Washington has leadership for the auto industry?

Year after year, decade after decade, we have seen problems papered-over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer.We can't afford my deficits either. Now is the time to confront our problems head-on and do what's necessary to solve them.

We cannot, we must not, and we will not let our auto industry simply vanish. This industry is, like no other, an emblem of the American spirit; a once and future symbol of America's success. It is what helped build the middle class and sustained it throughout the 20th century. It is a source of deep pride for the generations of American workers whose hard work and imagination led to some of the finest cars the world has ever known. It is a pillar of our economy that has held up the dreams of millions of our people. But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars. These companies -- and this industry -- must ultimately stand on their own, not as wards of the state. But with my involvement in the industry, and my demands that the CEO of GM resign, I want to make sure that the companies remain wards.

That is why the federal government provided General Motors and Chrysler with emergency loans to prevent their sudden collapse at the end of last year -- only on the condition that they would develop plans to restructure. In keeping with that agreement, each company has submitted a plan to restructure. But after careful analysis, we have determined that neither goes far enough to warrant the substantial new investments that these companies are requesting. And so today, I am announcing that my administration will offer GM and Chrysler a limited period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success. Admittedly I have no experience in any industrial work. The federal government, when it runs things, like the postal service and Amtrak, has not done a good job.

What we are asking is difficult. It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts. Only then can we ask American taxpayers who have already put up so much of their hard-earned money to once more invest in a revitalized auto industry. But I am confident that if we are each willing to do our part, then this restructuring, as painful as it will be in the short-term, will mark not an end, but a new beginning for a great American industry; an auto industry that is once more out-competing the world; a 21st century auto industry that is creating new jobs, unleashing new prosperity, and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy independent future. I am absolutely committed to working with Congress and the auto companies to meet one goal: the United States of America will lead the world in building the next generation of clean cars.

No one can deny that our auto industry has made meaningful progress in recent years.Although with the help of government regulations and generous labor burdens they have been impeded from competing with their more nimble competitors. Some of the cars made by American workers are now outperforming the best cars made abroad. In 2008, the North American Car of the Year was a GM. This year, Buick tied for first place as the most reliable car in the world.That is one of the major reasons why I think it is critical to get the CEO of GM to resign. And our companies are investing in breakthrough technologies that hold the promise of new vehicles that will help America end its addiction to foreign oil.

But our auto industry is not moving in the right direction fast enough to succeed. So let me discuss what measures need to be taken by each of the auto companies requesting taxpayer assistance, starting with General Motors. While GM has made a good faith effort to restructure over the past several months, the plan they have put forward is, in its current form, not strong enough. However, after broad consultations with a range of industry experts and financial advisors, I'm confident that GM can rise again, provided that it undergoes a fundamental restructuring. As an initial step, GM is announcing today that Rick Wagoner is stepping aside as Chairman and CEO. This is not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company; rather, it's a recognition that it will take a new vision and new direction to create the GM of the future.We don't want them to get Car of the Year again. In this context, my administration will offer General Motors adequate working capital over the next 60 days. During this time, my team will be working closely with GM to produce a better business plan. They must ask themselves: have they consolidated enough unprofitable brands? Have they cleaned up their balance sheets or are they still saddled with so much debt that they can't make future investments? And above all, have they created a credible model for how to not only survive, but succeed in this competitive global market? Let me be clear: the United States government has no interest or intention of running GM. What we are interested in is giving GM an opportunity to finally make those much-needed changes that will let them emerge from this crisis a stronger and more competitive company.

The situation at Chrysler is more challenging. It is with deep reluctance but also a clear-eyed recognition of the facts that we have determined, after a careful review, that Chrysler needs a partner to remain viable. Recently, Chrysler reached out and found what could be a potential partner -- the international car company Fiat, where the current management team has executed an impressive turnaround. Fiat is prepared to transfer its cutting-edge technology to Chrysler and, after working closely with my team, has committed to building new fuel-efficient cars and engines here in America. We have also secured an agreement that will ensure that Chrysler repays taxpayers for any new investments that are made before Fiat is allowed to take a majority ownership stake in Chrysler. The oddity of the assumptions here are awesome.

Still, such a deal would require an additional investment of tax dollars, and there are a number of hurdles that must be overcome to make it work. I am committed to doing all I can to see if a deal can be struck in a way that upholds the interests of American taxpayers.So I am trying to build the deficit to record levels and to keep those levels for many years in the future. That is why we will give Chrysler and Fiat 30 days to overcome these hurdles and reach a final agreement -- and we will provide Chrysler with adequate capital to continue operating during that time. If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6 billion to help their plan succeed.Gee, one wonders what kind of deal can be negotiated with such a time limit in place. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollar to keep Chrysler in business.

While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plans they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger. So if it is good idea in the future - why not now? Now, I know that when people even hear the word "bankruptcy" it can be a bit unsettling, so let me explain what I mean. What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold. What I am not talking about is a process where a company is broken up, sold off, and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out.

It is my hope that the steps I am announcing today will go a long way toward answering many of the questions people may have about the future of GM and Chrysler. But just in case there are still nagging doubts, let me say it as plainly as I can -- if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warrantee will be safe. In fact, it will be safer than it's ever been. Because starting today, the United States government will stand behind your warrantee. Actually Mr. President, it is Warranty. But are there other ways to implement such a plan without putting the taxpayers on the hook?

But we must also recognize that the difficulties facing this industry are due in no small part to the weakness in our economy. Therefore, to support demand for auto sales during this period, I'm directing my team to take several steps. First, we will ensure that Recovery Act funds to purchase government cars go out as quickly as possible and work through the budget process to accelerate other federal fleet purchases as well. Second, we will accelerate our efforts through the Treasury Department's Consumer and Business Lending Initiative. And we are working intensively with the auto finance companies to increase the flow of credit to both consumers and dealers. Third, the IRS is today launching a campaign to alert consumers of a new tax benefit for auto purchases made between Feb. 16 and the end of this year -- if you buy a car anytime this year, you may be able to deduct the cost of any sales and excise taxes. This provision could save families hundreds of dollars and lead to as many as 100,000 new car sales. The other tax provisions I am proposing will diminish those benefits for many taxpayers. Even the proposed benefit requires a choice - if you choose to take the deduction for income taxes, you can't get both.

Finally, several members of Congress have proposed an even more ambitious incentive program to increase car sales while modernizing our auto fleet. Such fleet modernization programs, which provide a generous credit to consumers who turn in old, less fuel efficient cars and purchase cleaner cars have been successful in boosting auto sales in a number of European countries. I want to work with Congress to identify parts of the Recovery Act that could be trimmed to fund such a program, and make it retroactive starting today. The changes that will be proposed won't reduce the deficit but will allow us to rearrange the deck chairs.

Let there be no doubt, it will take an unprecedented effort on all our parts -- from the halls of Congress to the boardroom, from the union hall to the factory floor -- to see the auto industry through these difficult times. But I want every American to know that the path I am laying out today is our best chance to make sure the cars of the future are built where they've always been built -- in Detroit and across the Midwest; to make America's auto industry in the 21st century what it was in the 20th century -- unsurpassed around the world. This path has been chosen after consulting with other governments that are facing this crisis. We have worked closely with the government of Canada on GM and Chrysler, as both companies have extensive operations there. The Canadian government has indicated its support for our approach and will be announcing their specific commitments later today. The Canadian government's record on manufacturing autos is as good as the US government's.

While the steps I am talking about will have an impact on all Americans, some of our fellow citizens will be affected more than any others. I have not mentioned Cap and Trade - of course that will slow down the recovery of the auto industry. And so I'd like to speak directly to all those men and women who work in the auto industry or live in the countless communities that depend on it. Many of you have been going through tough times for longer than you'd care to remember. And I will not pretend the tough times are over. I cannot promise you there isn't more pain to come.The deficits I am proposing in my budget will offer pain for generations to come, even if the auto industry recovers - even more if it does not. But what I can promise you is this -- I will fight for you. You are the reason I am here today. I got my start fighting for working families in the shadows of a shuttered steel plant and I wake up every single day asking myself what I can do to give you and working people all across this country a fair shot at the American dream. Actually I mean the European Socialist's dream.

When a community is struck by a natural disaster, the nation responds to put it back on its feet. While the storm that's hit our auto towns is not a tornado or a hurricane, the damage is clear, and we must respond. That is why today, I am designating a new Director of Recovery for Auto Communities and Workers to cut through red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities, and regions that rely on our auto industry. Edward Montgomery, a former Deputy Labor Secretary,I wanted to call him Commisar but I thought that might not work at this point. has agreed to serve in this role. Together with Labor Secretary Solis (Whose perfect record with organized labor and zero experience in any economic activity or even any private sector industry) and my Auto Task Force, Ed will help provide support to auto workers and their families, (actually all that support is coming from borrowed money, borrowed from you and your children and grandchildren) and open up opportunity in manufacturing communities. Michigan, Ohio, Indiana, and every other state that relies on the auto industry will have a strong advocate in Ed. He will direct a comprehensive effort that will help lift up the hardest hit areas by using the unprecedented levels of funding available in our Recovery Act and throughout our government to create new manufacturing jobs and new businesses where they are needed most -- in your communities. And he will also lead an effort to identify new initiatives we may need to help support your communities going forward.

These efforts, as essential as they are, will not make everything better overnight. There are jobs that cannot be saved. Except for those government jobs we keep creating. There are plants that will not reopen. And there is little I can say that can subdue the anger or ease the frustration of all whose livelihoods hang in the balance because of failures that weren't theirs.

But there is something I want everyone to remember. Remember that it is precisely in times like these -- in moments of trial, and moments of hardship -- that Americans rediscover the ingenuity and resilience that makes us who we are. That made the auto industry what it once was.Except even in FDRs time we did not have the kind of massive interventions in the industry that we propose now. That sent those first mass-produced cars rolling off assembly lines. That built an arsenal of democracy that propelled America to victory in the Second World War. And that powered our economic prowess in the first American century.

Because I know that if we can tap into that same ingenuity and resilience right now; if we can carry one another through this difficult time and do what must be done; then we will look back and say that this was the moment when America's auto industry shed its old ways, marched into the future, and remade itself, once more, into an engine of opportunity and prosperity, not only in Detroit, and not only in our Midwest, but all across America.