President Barack Obama has placed a big political wager on his ability to pull off a radical remake of the U.S. auto industry.
The risks he faces are myriad, including a backlash from his union faithful and from voters worried that he may be taking too strong a role in deciding the fate of private companies.
Mr. Obama’s tough actions on General Motors Corp. and Chrysler LLC are also drawing critical comparisons to his more cautious approach to the problems of big, sick banks and insurance companies. Mr. Obama demanded the ouster of GM’s CEO, Rick Wagoner, just three days after hosting a gathering of bankers at the White House, and seeking their help with his financial rescue plan.
Michigan Gov. Jennifer Granholm, a Democrat and Obama ally, defended Mr. Wagoner as a “sacrificial lamb” and noted “a perception here that there’s been a double standard with respect to the way manufacturing companies are treated and the way Wall Street is treated.”
On Capitol Hill, reaction to Mr. Obama’s plan covered the spectrum. Some in Congress said he had overstepped his authority by ousting Mr. Wagoner. Others applauded him for decisiveness in protecting the U.S. taxpayer by threatening to cut off all additional loans to GM and Chrysler if the companies don’t move swiftly to trim their operations.
Democratic Rep. Sander Levin of Michigan, brother of Sen. Carl Levin (D., Mich.), said on television that he thought the administration had learned not to treat Wall Street favorably after the uproar over bonuses paid to employees of American International Group Inc. “I think the answer is we need to get tough with Wall Street,” Mr. Levin said. “I mean, that’s the answer. And I think there hasn’t always been a single standard.”
Republican Sen. Bob Corker of Tennessee was more blunt. “This is a marked departure from the past, truly breathtaking, and should send a chill through all Americans who believe in free enterprise,” he said.
Mr. Obama won office in part due to support from auto workers in Michigan, Ohio and Indiana. But his plan, which calls for shrinking the country’s No. 1 and No. 3 car makers and reducing workers’ wages, could reverberate badly in those states, especially if it strips these workers of retirement benefits to which they feel entitled.
The president’s concern about those three swing states was expressed in his announcement that he will appoint Edward Montgomery, a former deputy labor secretary, to be a new Director of Recovery for Auto Communities and Workers to oversee efforts to make sure workers and communities battered by GM and Chrysler shutdowns get help.
At the same time, Mr. Obama’s focus on the unionized Detroit auto industry risks turning off the thousands of people who work for nonunion auto-making operations set up by Honda Motor Co., Toyota Motor Corp., Nissan Motor Co., BMW AG, Daimler AG and others in Kentucky, Alabama, Mississippi, Texas, Tennessee and California, among other states. Mr. Obama today made almost no mention of these U.S. auto makers, none of which are seeking federal aid.
The administration’s intervention at GM, where the government plans to replace most of the board of directors, also sent a strong ripple of concern through corporate America. “Are we moving toward a system similar to the French government’s ownership and control of corporations in France?” asked James E. Rogers, chief executive of Duke Energy. “If I was a banker that took [Treasury Department loans], I’d find a way to give it back as soon as possible.”
Union leaders reacted wearily to President Obama’s call for still deeper concessions. “It seems apparent to me that when you have the largest auto maker in the country, they’re going to get hit the hardest by what’s happening in the economy. Whose fault is that?” said Jeff Manning, the 46-year-old president of UAW Local 31, which represents GM workers who build Chevrolet Malibu sedans in Kansas City, Kansas. President Obama “has a responsibility to all Americans, so I can understand what he’s trying to do, but we need more time to recover,” Mr. Manning said.
There are also many risks inherent in Mr. Obama’s strategy to fix GM and Chrysler. Chrysler’s proposed alliance with Italy’s Fiat SpA might fall through. And even if it succeeds, it will take time for Fiat technology and cars to reach Chrysler showrooms. Fiat’s small cars, while successful in Europe and Latin America, could easily fall flat in the U.S. unless gas prices rise again and spur consumers to shift to more compact rides. As U.S. gas prices have eased since last summer, so has demand for hybrid and small cars, dealers say.
GM poses even more significant challenges. The administration is looking to shear off sagging brands as well as the company’s retiree health-care obligations.