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.
While the industry as a whole enjoys fat sales and rising profits, the rewards have not been spread evenly between GM and Chrysler. After some management turmoil, GM will post near-record profits this year on the back of a booming North American unit. The European business remains troubled, but has improved from the pit of despair it once was. And GM remains the best-selling maker in China, where sales now outstrip the United States.
If GM's firing on all cylinders, Chrysler appears to need a tune-up. When he first pitched his idea for combining Fiat and Chrysler during the 2008 crisis, Fiat chief executive Sergio Marchionne offered a plan that would combine the best of the two automakers, leveraging their skills for higher-volume vehicles. Today, much of that plan has been shredded; most of the models Marchionne promised have either been canceled or delayed, as a worse-than-expected European economy and tougher-than-expected engineering and design challenges threw off many timelines. One key example: New midsize sedans to replace the aged Dodge Avenger and Chrysler 200 that Marchionne pledged in 2009 as 2013 models will now be unveiled at the Detroit auto show in January — likely labeled as 2015s and facing far tougher competition.
And yet, Chrysler has managed to grow it sales and make $1.1 billion in proft this year without resorting to massive discounts or dumping cars into rental fleets — the short-term gain for long-term pain moves that put it into bankruptcy in the first place. Despite the mixed-up models, the Ram truck brand and the Jeep Grand Cherokee have grown in strength through new models. It's not bad for a company that many of Obama's advisors, and many outside commentators, declared all but dead five years ago.
Marchionne hasn't been able to enjoy this much due to the bailout's last battle, the question of how much Fiat should pay for the 41.5 percent of Chrysler held by a trust fund that pays for retired UAW members health care. The trust wants at least $5 billion; Fiat wants to pay at least $1 billion less, and a plan to take Chrysler public and let Wall Street set the price had to be delayed on Monday until 2014. And while Fiat has suggested in filings that it could unwind the partnership if a deal can't be reached, most financial experts see more risk for a Chrysler-free Fiat than a Fiat-free Chrysler.
After the stock sale by Treasury, GM will be free from federal controls on executive pay, and those same executives hope, the "Government Motors" moniker. Yet that label has never been all that accurate; in the years since its bankruptcy, there's never been evidence of direct government sway over day-to-day decisions. GM has made all of its models more fuel-efficient, just as Obama pledged it would in April 2009, but it still lacks a hybrid that even approaches sales of the Toyota Prius or Ford Fusion, and profits in 2014 will rely mostly on its new full-size pickups and SUVs like the blingy Cadillac Escalade, just as it did in 2008. The $81 billion bailout of the U.S. auto industry changed GM and Chrysler in profound ways, but in a few important ones it restored business as usual.