In 2008, much of the auto industry was beaten down by an economy that had come to a halt under the steep decline in home prices and the weight of too-big mortgages.
Ford Motor Co. had money in the bank and with some swift steps at cost cutting, stayed on its feet. But Chrysler and General Motors felt the rug under them slipping away. Fiat, which was doing much better then than it is now, had the resources to invest in Chrysler. G.M. cut wages, reduced the number of its dealers and repaid lenders less than they were owed. The federal government also loaned GM billions of dollars, receiving stock in exchange.
Republican Mitt Romney, with roots in Michigan, criticized the federal government’s involvement at the time and through his just-ended presidential campaign. Labor won too much, bondholders lost too much, he would say.
But GM and Chrysler survived, as did the thousands of suppliers that support the auto industry. Most business experts agree only the federal government was able to move fast enough and decisively enough to provide the critical financial lifelines. The banking sector, with some of its major institutions uncertain they would survive because of the mortgage crisis and the leverage they had bet on, could not and would not take the sizeable risk. Only the federal government was available.
Last week, General Motors and the federal government agreed on the price that GM will pay for a large chunk of the federally held stock, and agreed that the last of the stock will be out of the government’s hands and in GM’s in 2014. In another loan-for-stock made at the same time, with insurance reinsurer AIG, the federal government has made money on its bailout. With General Motors, it will not.
General Motors’ trucks and automobiles continue to be highly regarded. The company has had two profitable years and has built up some cash reserves. In Chrysler’s case, that brand with its American market has grown to be a strong nameplate in an otherwise shaky Fiat line based in Europe.
Naysayers at the time of the federal bailout predicted all kinds of federal meddling in the companies’ operations, including protections for labor and favorable legislation. That did not occur.
The share of federal corporate ownership in these companies is coming to an end, as it should. It was a bold attempt at maintaining an industry that was critical to this country, and it worked. Not entirely perfectly, but it worked. Because of that, hundreds of thousands of workers kept their jobs, and the economy during the past four years has been in far better shape than it would have been. We are pleased with that result.