President visits automakers

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The President's message was that the federal government's timely actions saved the American automotive industry.

"In the 12 months before I took office, the American auto industry lost hundreds of thousands of jobs.  Sales plunged 40 percent," Obama said in Detroit. "The industry looked like it was going over a cliff."

Obama said it would have been a mistake for the goivernment to simply bail carmakers out uncondiditionally, and a greater mistake to do nothing.

Chrysler and GM would have disintegrated, Ford would have been under greater pressure, and the industry would likely have failed, Obama said.

"Independent estimates suggest that more than 1 million jobs could have been lost if Chrysler and GM had liquidated," Obama said. "I refused to let that happen."

So the government made a deal with the automakers to lend them money if they restructured through bankruptcy.

"What we said was, if you're willing to take the tough and painful steps necessary to make yourselves more competitive; if you're willing to pull together workers, management, suppliers, dealers, everybody to remake yourself for changing times then we'll stand by you and we'll invest in your future," Obama said..

In the year before these bankruptcies, these companies lost almost 340,000 jobs.  In the year since then, 55,000 jobs have been added to these companies, said Ron Bloom, senior advisor on automobiles to the Treasury Secretary. The government is on track to recoup all of gthe $60 billion it invested to keep GM and Chrysler afloat, officials said. The White House also spoke of signs that the auto industry was turnhing around,

Industry experts say that at least a part of the government's self-congratulation is deserved.

"it is safe to say that approximately 100 percent of GM and Chrysler workers who are employed today in the U.S. and Canada would not be working in the automobile industry were it not for the U.S. and Canadian governments' intervention," said Gary Burless of the Brookings Institute. "In the absence of the bailout, these workers would be unemployed, out of the labor force, or working in some other industry.  A few might have found jobs at Ford or in the North American plants of overseas-based auto companies, but very few."

Burtless esrtimated that "more than half of the workers at auto-supply plants which mainly produce parts for GM and Chrysler would also be unemployed."

The effects, he said, "would have been even more widespread" because "1) some U.S. government intervention went directly to help support the auto parts companies, and without that help some of the companies would have failed and disappeared; and 2) the disruption caused by the complete failure of GM and Chrysler would have caused the bankruptcy and probably the end of operations of some auto parts companies that also own factories that produce parts for Ford and the non-US-based auto makers.

"Finally, a large percentage of the workforce in surviving auto dealers that sell GM and Chrysler products would have been unemployed," Burtless said.

Despite the good news, the industry will have to "shrink", although he does not profess to know how much, to a new normal "for company profitability to be strong enough to stabilize the size of the industry.  It will certainly be a much smaller industry than it was at the end of the 1990s," he said.

David Silver of Wall Street Strategies painted a less rosy scene than the administration.

"There are a few different loans" that White House officials could be talking about.

"The first loans are from before Chrysler and GM went bankrupt and those loans just prolonged the inevitable," Silver said. "However, it did give the companies and the government time to organize the two automakers quick trip through bankruptcy. Those investments haven't been paid back yet."

Silver said that the government owns 61 percent of General Motors because of that investment, and also a portion of Chrysler.

"However, the 'direct loans' that the companies received have been paid back in full by General Motors and most has been paid by Chrysler," Silver said.  "Ford did not take any direct loans from the government.  However, all three companies have received government loans to rework their plants to make the factories more efficient as well as to invest in research and development for more fuel efficient models." 

Silver said he did not buy the government's "jobs saved" line. Still, he credited government intervention with tax incentives and programs like "Cash for Clunkers" for helping to boost production and create jobs.

"It doesn't really seem like creation as much as reabsorbing some of the jobs that were lost during 2008 and 2009," Silver said.

Silver explained that the first half of the year looked strong because as the industry was coming out of one of the worst six months in its history.

"Then there were the problems with Toyota, which still haven't ended," Silver said. "In response to all its recalls, Toyota offered so many incentives that other automakers had to act to keep pace and offered so many incentives that consumers rushed into showrooms."

But the incentives have lessened and the momentum in the industry has faded, he saId.

Silver expects the second half of the year to be more difficult for the auto industry, as production levels fall through the next three months. 

"For the near term, I think all the jobs that are going to be added have been added," Silver said. "The potential of a new battery plant from a South Korean company could add some jobs. But the growth in jobs is going to be slow."