Fox Overlooks The Facts In Rush To Pin Auto Industry Job Losses On Obama

Blog ››› ››› ZACHARY PLEAT

The Obama campaign recently released a new ad highlighting the way venture capital firm Bain Capital, under Mitt Romney's leadership, handled the takeover of a steel mill that later went bankrupt. Bain Capital walked away with millions in profit and consulting fees while hundreds of GST Steel workers lost their jobs and many more lost a percentage of their pensions. The U.S. government ultimately had to intervene to cover the mill's pension payments.

Fox News is defending Romney by pointing to the Obama administration's handling of the auto industry's rescue and the dealerships that were closed under the managed bankruptcies of General Motors and Chrysler -- which resulted in significant job losses.

Fox & Friends' Brian Kilmeade highlighted the losses when he claimed that "there's no way the president should have been cutting dealerships and making these demands. He knew nothing about the car business -- that was way over the line." Kilmeade added: "He's talking about costing jobs, he went in and fired a bunch of people."

Fox News contributor Byron York similarly argued that Romney and his supporters should bring up the dealerships closed during the auto rescue and the "tens of thousands" of jobs lost as a result. Senior Fox political analyst Brit Hume advised Romney to "talk about the dealerships, the auto dealerships that were closed down when the government took control of a couple of the auto companies," adding, "an awful lot of people lost their jobs."

But to compare Bain's treatment of GST Steel to the Obama administration's handling of the auto crisis is not only "fairly silly," it ignores important facts.

According to data from the Bureau of Labor Statistics, the auto industry had already experienced the bulk of its job losses by the time President Obama took office in January 2009 -- more than 178,000 jobs were lost in the auto dealer industry between January 2008 and January 2009.

Furthermore, the decision to close the auto dealerships had been made by the car companies before the Obama administration took over -- in fact, as the restructuring and finance deal GM was required to submit to the Bush administration shows, GM had already planned to reduce its dealerships by 25 percent:

From the plan:

Due to the Company's long operating history and legacy locations, many GM dealerships now operate from outdated facilities that are also no longer in the prime locations required to succeed. As a result, the traditional strength of GM's broad dealer network in major markets has become a disadvantage for both the dealerships and the Company. GM has long recognized this issue and, since 1970, has reduced the U.S. dealer body by over 6,000 dealerships.

[...]

To continue to address this issue, GM will accelerate the right-sizing and re-shaping of its dealer network in major markets, increasing volume throughput in better locations.

[...]

As noted in Table 3, from 2004 to 2008, GM dealerships declined by 15% (from 7,367 to 6,246). Over the next four years, GM dealerships will be reduced at an accelerated rate, declining by a further 25% (from 6,246 to 4,700).

Chrysler's restructuring plan didn't detail the number of dealerships it planned to close, but it did claim that under a worst-case scenario, with the company facing liquidation, 3,300 dealerships would have gone out of business.

In the end, the Obama administration's managed bankruptcy process accelerated the dealership closings. From Bloomberg:

The department's autos task force in early 2009 found Detroit-based GM's plan for closing 1,650 dealers by 2014 too slow, according to Barofsky's report. In response, GM identified 1,454 dealerships to be shut down by October, Barofsky said.

Auburn Hills, Michigan-based Chrysler, which planned to shut almost 1,200 dealerships by 2014, instead decided to immediately close 789 in bankruptcy, after Treasury's urgings, according to the report.

The Treasury Department, using advice received from industry experts, had encouraged smaller dealer networks to help the carmakers boost sales and better compete with Japan's Toyota Motor Corp. and Honda Motor Co., according to the report.

According to economist Mark Zandi, the cuts were necessary: "The dealer network was part of the problem ... It was bloated and had not rationalized to weakening levels of sales. It's now rationalized, restructured and meddle-tested. They have gone through a wrenching process."

Data on dealership profits shows Zandi is correct. Crain's Detroit Business reported that a report from the National Automobile Dealers Association showed that dealership profits in the first five months of 2010 nearly doubled compared to the same time a year before. According to Bloomberg, "[i]ndustrywide per-store dealership profit has almost tripled from 2008." Bloomberg also reported:

A smaller dealer network is working for GM and Chrysler. More than 90 percent of GM's dealers were profitable in 2011, up from 57 percent in 2008 and the highest since the mid-1970s, said Tom Henderson, a company spokesman. Chrysler said in a regulatory filing last week that 86 percent of its dealers in the U.S. reported being profitable last year, up from 49 percent in 2008.

On May 3, GM announced it had posted its ninth consecutive profitable quarter; conversely, it was Chrysler's first profitable quarter since 2006.

Posted In
Economy, Jobs, Wages, & Unemployment
Network/Outlet
Fox News Channel
Person
Brit Hume, Brian Kilmeade, Byron York
Show/Publication
FOX & Friends
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