Obama, the game-changer

His dramatic intervention in the auto industry has enormous implications for the presidency, and his presidency
His dramatic intervention in the auto industry has enormous implications for the presidency, and his presidency

President Obama is taking pragmatic steps to help the auto industry without burdening taxpayers with open-ended multibillion dollar commitments to it. I doubt he gave much thought to the game-changing implications of his announcements. Let me spell out a few.

Obama, in effect, fired the president and CEO of General Motors and ordered Chrysler to merge with a foreign manufacturer, Fiat, or else. In the latter case, he set a 30-day deadline which either will force Chrysler to yield to Fiat's terms or face bankruptcy and a sale of its assets. These are unprecedented interventions by an American President into private-sector decisions.

It would be hard to put Chrysler's chances for ultimate survival at anything more than 40-60. GM has 60 days to get concessions from its unions and bondholders which would enable it to qualify for further federal money. I make it 50-50 that GM will do so. If it fails, it almost certainly will then be forced into a bankruptcy proceeding in which a judge will impose the changes, setting in motion consequences not only for GM but for its workers, bondholders, dealers, suppliers, and the communities in which it operates.

The U.S. industry's biggest problem is one that is shared by other auto manufacturers, worldwide: huge production overcapacity. Some companies must merge or fail before supply and demand come into alignmnent. As the highest-cost producers, American companies are at greatest present risk. Even before the present economic downturn, they had been operating in the red for a long period.

Right now everyone is focusing on the 30- and 60-day deadlines set by Obama for the auto makers to shape up. Later there will be much political fallout, from all directions, as blame is placed for an outcome which surely will result in lost jobs and a shrunken domestic industry. Scholars and analysts also will examine the precedent set by Obama in preempting private-sector decisions previously reserved to corporate boards and managers, shareholders, and consumers. We are only at the beginning of that debate.


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About the Authors & Contributors

Ted Van Dyk

Ted Van Dyk

Ted Van Dyk has been active in national policy and politics since 1961, serving in the White House and State Department and as policy director of several Democratic presidential campaigns. He is author of Heroes, Hacks and Fools and numerous essays in national publications. You can reach him in care of editor@crosscut.com.