By Angelo Young -
Five years after U.S. taxpayers bailed out General Motors and Chrysler in the wake of the Great Recession, President Barack Obama is headed to Detroit to tout the domestic auto industry’s recovery. The White House said Wednesday Obama would visit the Ford Michigan Assembly Plant in Wayne, 20 miles west of Detroit, where the Ford Focus compact car is manufactured.
“Today, the president is headed to Detroit to highlight the progress that American automakers, manufacturers, and the economy have made since the recession,” Tanya Somandar, White House deputy director of digital content, said Wednesday on the White House blog.
During his visit to the plant Wednesday afternoon, Obama is expected to tout the U.S. Treasury Department’s $79.69 billion auto industry bailout program. The effort, which the president inherited as he took office in January 2009, cost taxpayers over $9 billion and turned Auburn Hills, Michigan-based Chrysler into a U.S. subsidiary of London-based Fiat Chrysler Automobiles NV.
The U.S. automotive industry is much better off today, with 2014’s 59 percent rise in annual new-car sales compared with 2009, when demand plummeted to a 30-year low in the wake of the Great Recession. Sales are back to pre-recession levels and analysts expect that momentum to continue this year.
“Certainly the auto sector has bounced back since the bankruptcies,” said Chad Moutray, chief economist for the National Association of Manufacturers. “The auto sector continues to really drive a lot of growth and continues to be one of the bright spots in the manufacturing sector. There’s a lot of positive [economic] spillover effect from the auto sector.”
This spillover has largely avoided the city of Detroit, a blighted symbol of industrial globalization and American urban decay. The city has suffered years of mismanagement and recently emerged from bankruptcy. Surrounded by wealthier suburbs that benefit most from the automotive industry, Detroit’s unemployment rate is one of the highest for any sizeable U.S. city, at 8.1 percent, well above the national jobless rate of 5.8 percent.
Part of the rebound of the automotive sector is linked to the Fed’s policy that has kept interest rates at or near zero percent since 2008. This has had a profound effect on new-car sales because 85 percent of new-car purchases are financed. Auto financing is now as high as it was in the year just prior to the Great Recession.
Ford employees including Ford President and CEO Mark Ford and Executive Chairman Bill Ford are scheduled to attend the president’s event. The Dearborn, Michigan, maker of the F-150 pickup truck (the most popular vehicle in the United States) avoided bankruptcy in 2009, but emerged a much leaner company, selling off many of its pre-recession acquisitions, including Volvo. Ford also received $5.9 billion worth of loans under the Obama administration’s policy of extending financing to the private sector to make factories more energy efficient.
The rescue of General Motors cost $10.49 billion, and Chrysler’s rescue cost $1.29 billion. The bailout of Ally Financial Inc., the bank holding company that was formerly GM’s auto-financing arm, ended up with a $2.4 billion gain to the U.S. government, which reduced the financial burden of rescuing the whole auto sector to $9.26 billion. The rescue of the auto industry officially ended Dec. 19 with the U.S. Treasury’s sale of its final 11.4 percent stake in Ally.
U.S. manufacturers have added over 740,000 workers since the end of 2009, less than a third of the 2.3 million manufacturing jobs lost in the Great Recession. And growth in manufacturing jobs is more robust than in the years before the recession when the country was facing monthly losses. Now, Moutray says, the sector in more lean and productive, which is leading to growth.
“When you’re looking at the US economy, manufacturers are optimistic that this is the year where we might get traction,” he said.