Rupert Cornwell: US car industry drives back from the brink

Out of America: One of the success stories of the Obama administration has been the resurrection of the 'Big Three' after a government bailout

Related Topics

These days, what with a sour economy, unrelenting Republican opposition and a world that stubbornly refuses to bow to his will, victory laps are few and far between for Barack Obama. But last week he was taking one around what, at the moment of his election two years ago, would have been the most improbable of circuits: America's beleaguered car industry. And in the land where unfettered capitalism is king, the President was bringing an equally unfamiliar message. Government intervention works.

The rescue of Detroit's erstwhile "Big Three" is one of the unsung success stories of the Obama administration. It's not a done deal; the industry could yet again tumble back into crisis thanks to its own mistakes, or thanks to the second dip of what may prove to be a double-dip recession. Friday's latest unemployment figures, showing the loss of 131,000 more jobs, suggests the latter remains very much on the cards. But at least the vanishing jobs are no longer in the car industry. To understand how remarkable this is, cast your mind back to November 2008.

It wasn't just the near-death experience of the financial system that cast a sobering shadow over those Obama election night celebrations in Chicago. It was also the fact that the US car-makers, once the jewel of the nation's manufacturing sector, were on the verge of death as well. General Motors and Chrysler were to all intents and purposes bankrupt; Ford would have been too, but for a massive line of credit it had taken out in 2006, repayable in 2013, against which it had mortgaged the entire company.

In December 2008 Congress refused to take up legislation to rescue the industry. At that moment a bailout for Detroit was even more unpopular than a bailout for Wall Street. With their stupidity and shortsightedness, and their refusal to build high-quality, fuel-efficient vehicles, the car companies had been architects of their own downfall. Let these incompetent, tin-eared executives, who took private jets to bring their begging bowls to Washington, pay the market's price for their follies. Such was the popular mood. If the US emerged from the crisis without a car industry, then so be it.

To his credit, it was the outgoing George W Bush who realised that, for all their sins, the car manufacturers could not simply be thrown to the wolves and his successor left, in his words, "to confront the demise of a major American industry in his first days in office".

Bush diverted $25bn (£15.6bn) from the Troubled Asset Relief Program (Tarp) bank rescue fund to GM and Chrysler. Obama added a further $60bn, conditional on the two companies shedding jobs (including those of their top management), going through bankruptcy and coming up with realistic restructuring plans.

The public disapproved, but the scheme went through. Today the US Treasury owns 61 per cent of a slimmed-down GM that has shed four of its eight former brands, as well as a big chunk of Chrysler, now run by Italy's Fiat. Exactly how many jobs were saved is impossible to know. The Obama administration says a million, and who is to disagree? Indubitably, for a stricken Detroit, in its distant heyday the fourth largest city in the land, the collapse of the car industry would have been the coup de grâce.

As I said, it's not a done deal, not by a long shot. But each of the three companies is today in profit, the first time this has happened since 2004. In all, the sector has added 76,000 jobs since GM and Chrysler emerged from bankruptcy. GM has already paid back $6bn of emergency loans, and plans to sell a big slice of the Treasury's stake, taking the company public by the end of 2010.

"We want the government out, period," Edward Whitacre, GM's chief executive, said last week. "We don't want to be known as Government Motors." As for Ford, it is still supported by government loan guarantees for the development and export of a new generation of "green" vehicles. But investors brave enough to take a punt in mid-November 2008, when its shares fell below $1.50, have done very nicely indeed. Ford stock closed on Friday at about $13.

Nor, to its credit, has the Obama administration meddled in GM's management, as critics of the bailout predicted. It hasn't pandered to the Democrats' allies in the unions, and it hasn't forced uneconomic pet projects on the company. What it has done is set higher fuel-efficiency standards for US cars (39mpg by 2016 compared with 27.5mpg today) – something that would have happened years ago but for ferocious lobbying by the industry.

The real glory days, of course, are gone for ever. Back in 1965, total car and truck sales here hit 15 million for the first time. This year they may recover to about 12 million, but no one expects a return to the 15 million mark before 2014 at the earliest, and China (inevitably) has now supplanted the US as the world's biggest market.

As for Detroit, its decline may be measured by schemes to turn back into farmland swaths of overgrown, abandoned plots where once stood the tidy homes of car workers in jobs that seemingly would last for ever. "Dust thou art, and unto dust shalt thou return." The biblical admonition applies even to the Motor City.

And even today's recovery is not a given. The "Big Three" are still heavily dependent on gas-guzzling trucks and SUVs. Ford has its highly praised Fusion hybrid, but whether buyers are ready to shell out $41,000 (£25,600) for GM's electric-petrol Chevrolet Volt, due out in November, remains to be seen.

Nonetheless, Mitt Romney, reared in Detroit, and past and almost certainly future Republican presidential candidate, at least has been proved wrong. If the bailout went ahead, he declared in November 2008, "we can kiss the automotive industry goodbye". That poignant leave-taking has not yet occurred – and is unlikely to anytime soon.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Senior Data Scientist (Data Mining, RSPSS, R, AI, CPLEX, SQL)

£60000 - £70000 per annum + Benefits + Bonus: Harrington Starr: Senior Data Sc...

Law Costs

Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...

Junior VB.NET Application Developer (ASP.NET, SQL, Graduate)

£28000 - £30000 per annum + Benefits + Bonus: Harrington Starr: Junior VB.NET ...

C# .NET Web Developer (ASP.NET, JavaScript, jQuery, XML, XLST)

£40000 - £50000 per annum + Benefits + Bonus: Harrington Starr: C# .NET Web De...

Day In a Page

Read Next

Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Ellen E Jones
Scientists have discovered the perfect cheese for pizzas (it's mozzarella)  

Life of pie: Hard cheese for academics

Simmy Richman
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor
She's dark, sarcastic, and bashes life in Nowheresville ... so how did Kacey Musgraves become country music's hottest new star?

Kacey Musgraves: Nashville's hottest new star

The singer has two Grammys for her first album under her belt and her celebrity fans include Willie Nelson, Ryan Adams and Katy Perry
American soldier-poet Brian Turner reveals the enduring turmoil that inspired his memoir

Soldier-poet Brian Turner on his new memoir

James Kidd meets the prize-winning writer, whose new memoir takes him back to the bloody battles he fought in Iraq
Aston Villa vs Hull match preview: Villa were not surprised that Ron Vlaar was a World Cup star

Villa were not surprised that Vlaar was a World Cup star

Andi Weimann reveals just how good his Dutch teammate really is
Bill Granger recipes: Our chef ekes out his holiday in Italy with divine, simple salads

Bill Granger's simple Italian salads

Our chef presents his own version of Italian dishes, taking in the flavours and produce that inspired him while he was in the country
The Last Word: Tumbleweed through deserted stands and suites at Wembley

The Last Word: Tumbleweed through deserted stands and suites at Wembley

If supporters begin to close bank accounts, switch broadband suppliers or shun satellite sales, their voices will be heard. It’s time for revolution