John D. Copeland
To stimulate an economy mired in a difficult recession, the Obama administration created the Troubled Assets Relief Program and funded it with almost $1 trillion in taxpayer dollars. The administration used TARP money to bailout distressed businesses considered critical to the nation’s economic well-being, including the auto industry.
President Obama created an auto industry task force and named Steve Rattner, a Democrat fundraiser and operative, the nation’s car czar. Rattner and his task force used TARP money to take control of General Motors and Chrysler.
From the beginning, politics played a large role in Rattner’s and the task force’s business decisions. The administration gained control of Chrysler when the company was in bankruptcy. The administration coerced Chrysler’s secured creditors into accepting a deal that mostly benefited the unsecured creditors and gave the United Auto Workers 55 percent of Chrysler. In the last election cycle, UAW’s political action committee spent $13 million supporting candidates, and 99 percent of the money went to Democrats.
Rattner and the task force decided they could make GM and Chrysler more profitable and competitive with foreign automakers by closing one-fourth to one-third of their dealerships. The task force gave GM and Chrysler lists of hundreds of GM and Chrysler dealerships to close, without any explanation of the selection criteria used. Chrysler executives testified in depositions the administration threatened to withhold TARP funds unless it closed the named dealerships.
Owners of the closed dealerships claimed unfair treatment by the Obama administration and that political patronage and bias dominated the task force’s selections. Of the 789 dealerships closed early in the process, 788 gave money only to Republican candidates.
In some places, the dealerships closed competed directly with those owned by Democrat Party supporters. For example, Mack McLarty and Robert Johnson own Chrysler dealerships in Arkansas and Missouri under the business name RLJ-McLarty-Landers. McLarty served as President Clinton’s chief of staff. Johnson founded Black Entertainment Television and gives heavily to Democrat candidates and causes. The task force ordered the closure of eight profitable Chrysler dealerships that competed geographically with McLarty and Johnson’s dealerships.
The administration denies that politics played any part in deciding which dealerships to close. It says Republicans simply own an overwhelming majority of auto dealerships.
A recent government report, however, supports the accusations of the administration’s critics.
The Obama administration appointed Neil M. Barofsky special inspector general for TARP. On July 19, Barofsky filed a scathing report condemning the auto task force and administration’s handling of the auto bailout.
Barofsky found no evidence that closing the dealerships saved GM and Chrysler money or made them more competitive. As one GM official told Barofsky, “Closing a dealership never saved GM one damn cent.”
The closings probably cost the companies money. The administration closed 2,000 dealerships, many of which were more profitable than those not closed.
The closings cost 100,000 people their jobs during a deep recession – and after the administration set a goal of creating more jobs.
Ron Bloom succeeded Steve Rattner as car czar, and Bloom admits the task force closed many profitable dealerships. So what is his excuse for closing them and putting tens of thousands of people out of work? Bloom says keeping the dealerships open “would have been inconsistent with the President’s mandate of shared sacrifice.”
Bloom’s explanation is nonsense. Barofsky concludes the administration closed the dealerships based on an unsound economic theory without considering the closings’ broader economic impact.
Unfortunately, Barofsky did find evidence of bias in selecting the doomed dealerships. He found the administration favored keeping open dealerships owned by minorities and women.
The administration’s only response to the Barofsky report is that it disagrees with the report’s conclusions, but it thanks Barofsky for his service.
The auto bailout is a cautionary tale. It shows what happens when any administration takes control of an industry. Political patronage and bias taint business decisions in favor of a privileged few.
John D. Copeland, J.D., LL.M., Ed.D., is an executive in residence at The Soderquist Center for Leadership and Ethics and a retired professor of business at John Brown University in Arkansas. He’s also a Kallman executive fellow at the Center for Business Ethics at Bentley University in Waltham, Mass. He can be reached at jdcethics@gmail.com.[[In-content Ad]]
