PrintJuly 20, 2010
Obama's 'Mandate for Sacrifice' Costs Thousands of Jobs
As many as 100,000 Americans who lost their jobs, or will soon, because of GM and Chrysler dealership closings can thank Barack Obama and his "mandate for shared sacrifice," according to a top Obama official.
In a scathing report on the federal auto industry bailout, Special Inspector General Neil M. Barofsky notes that the Obama administration rejected initial automaker plans which would have required relatively minimal dealership closings, insisting instead on far more drastic cuts -- as many as two thousand dealerships between the two corporations.
[W]hen asked explicitly whether the [Obama] Auto Team could have left the dealerships out of the restructurings, Mr. [Ron] Bloom, the current head of the Auto Team, confirmed that the Auto Team "could have left any one component [of the restructuring plan] alone," but that doing so would have been inconsistent with the President's mandate for "shared sacrifice."
The report notes that an Obama team memo estimates that the average dealership employs 52 people. Nevertheless, the Obama administration insisted that the two corporations abandon their plans for more modest closures, or "terminations," and implement plans that could cost 100,000 Americans their paychecks.
...So that they could "share" in the sacrifice.
Barofsky's report paints a portrait of cavalier disregard for the people the Obama administration damaged by its actions:
Treasury (a) should have taken every reasonable step to ensure that accelerating the dealership terminations was truly necessary for the long-term viability of the companies and (b) should have at least considered whether the benefits to the companies from the accelerated terminations outweighed the costs to the economy that would result from potentially tens of thousands of accelerated job losses. The record is not at all clear that Treasury did either. The anticipated benefits to the companies of accelerated terminations were based almost entirely on the not-universally-accepted theory that an immediate decrease in dealerships would make them similar to their foreign competitors and therefore improve the companies' profitability, and the theory arguably did not take into account some of the unique circumstances of the domestic companies' dealership networks. It undertook no market studies to test the counterintuitive theory until after making its Viability Determination. More importantly, there was no effort even to quantify the number of job losses that the Auto Team's decision would contribute to until after the decision was made, and the effect on the broader economy caused by accelerated dealership terminations similarly was not sufficiently considered.
Barofsky rejects the administration's stated reasons for their draconian actions:
Treasury's [The Obama Treasury Department's] letter seems to imply that Treasury was faced with the decision either to encourage the acceleration of dealership terminations substantially, as it did, or let the companies fail altogether. This is a false dilemma with no factual support: no one from Treasury, the manufacturers or from anywhere else indicated that implementing a smaller or more gradual dealership termination plan would have resulted in the cataclysmic scenario spelled out in Treasury's response.
And Barofsky's report even questions whether the closures would lead to any real savings for GM and Chrysler. "One GM official emphasized this point by telling SIGTARP (Barofsky) that GM would usually save 'not one damn cent' by closing any particular dealership."
The Inspector General's report also points to ineptitude by the Obama White House:
... the Administration created a Treasury Auto Team (the "Auto Team"), which reports to the Task Force and had the responsibility of evaluating the companies' restructuring plans and negotiating the terms of any further assistance. Leading the Auto Team were two advisors: Ron Bloom, a former investment banker and head of collective bargaining for the United Steelworkers Union, and Steven Rattner, the co-founder of the Quadrangle Group, a private-equity firm ... Although this group was responsible for managing AIFP, none of the Auto Team leaders or personnel had any experience or expertise in the auto industry.
And while the "Auto Team" may not have had much experience with the auto industry, the Task Force it reported to had quite a bit of experience in another field. Among the Task Force members and senior advisors were Carol Browner, the White House climate czar; Environmental Protection Agency Administrator Lisa Jackson; and Energy Secretary Steven Chu. Task Force senior policy aides included Heather Zichal, deputy director of the White House Office of Energy and Climate Change; Lisa Heinzerling, senior climate policy counsel to the head of the EPA; and Dan Utech, senior adviser to the Energy Secretary.
All of these people may have had more interest in reducing auto emissions than in saving jobs down at the local Chevy dealership.
Perhaps to make up for the Auto Team's lack of experience, two consulting firms, Boston Consulting Group and Rothschild North America, were hired to help the team with their analysis. Perhaps there was another reason, though. Employees of BCG contributed more than $55,000 to Barack Obama during the 2006-2008 election cycle. Rothschild employees contributed $133,000 to Obama's campaign and tens of thousands more to the Democrat National Committee. BCG stands to make up to $7 million for this contract, Rothschild $7.7 million.
What did the public get for its millions? Among other things, a projection by Rothschild that GM sales would increase by 50% by the year 2014.
This is the picture that emerges from the Inspector General's report: an Obama auto industry team made up of people unfamiliar with the auto industry, using data provided by major Obama campaign contributors, and reporting to a Task Force more interested in promoting global warming than in protecting American jobs.
What could possibly go wrong with that?
Just ask the tens of thousands of people who lost their jobs as a result.
And all for Obama's "shared sacrifice."
William Tate is an award-winning journalist and author.
