Obama Administration’s Actions in Auto Bailout Added to Unemployment, Audit Says

July 20, 2010 - 3:41 PM
The Obama administration's policies in steering the auto bailout drove unemployment up, according to an audit by the Office of Special Inspector General for the Troubled Assets Relief Program (SIGTARP).

Chrysler dealership owner Catherine Zimmer, right, talks with partners Rich Zimmer, left, and John Zimmer, outside their auto dealership, Tuesday, June 8, 2010, in Florence, Ky. General Motors Co. expects to keep 1,000 more dealers than it planned when it first announced dealer closures last year. (AP Photo/Al Behrman)

Washington (CNSNews.com) – The Obama administration’s policies in steering the auto bailout drove unemployment up, according to an audit by the Office of Special Inspector General for the Troubled Assets Relief Program (SIGTARP).
 
“At a time when the country was experiencing the worst economic downturn in generations and the government was asking its taxpayers to support a $787 billion stimulus package designed primarily to preserve jobs, Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls – all based on a theory and without sufficient consideration of the decisions’ broader economic impact,” the audit by SIGTARP Neil Barofsky stated.
 
“It is not at all clear that the greatly accelerated pace of the dealership closings during one of the most severe economic downturns in our Nation’s history was either necessary for the sake of the companies’ economic survival or prudent for the sake of the Nation’s economic recovery,” the audit added.
 
The federal government committed $80.7 billion out of TARP, the $700 billion rescue bill enacted in late 2008, to save General Motors and Chrysler. Chrysler closed 789 dealerships, while GM is set to have closed 1,454 dealerships by October 2010 as a cost cutting measure.
 
The Treasury Department pushed General Motors and Chrysler to close dealerships at a faster rate than the companies suggested, without taking job losses into consideration, the audit says.
 
“Although there was a broad consensus that GM and Chrysler generally needed to decrease the number of their dealerships, there was disagreement over how, where and how quickly the cuts should have been made,” the audit says.
 
“In the fact of the worst unemployment crisis in a generation and during the same period in which government was spending hundreds of billions of dollars on a stimulus package to spur job growth, the Auto Team rejected GM’s original plan (which included gradual dealership terminations), expressly indicated that GM’s pace of terminations was too slow, and then encouraged the companies’ use of bankruptcy to accelerate dealership terminations,” the audit continued.
 
White House Press Secretary Robert Gibbs said Monday that if the administration had not taken the actions it did, far more jobs would have been lost.
 
“I think it’s important to look at the decision to put into bankruptcy and restructure both Chrysler and GM. I think it is safe to say without that decision that the president made, it is likely that neither of those two auto companies would exist today,” Gibbs said. “Because of the president’s actions to date, there are tens of thousands of auto jobs, auto manufacturing jobs, auto dealership jobs that exist and auto parts manufacturing jobs. “
 
The Treasury Department strongly disagreed in a letter to the special inspector general’s office.
 
“In the absence of government assistance, both GM and Chrysler faced almost certain failure and liquidation, which would have resulted in the loss of hundreds of thousands of jobs across multiple industries,” said the letter from Herbert Allison, assistant Treasury secretary for financial stability.
 
Meanwhile, GM also weighed in with a statement Monday.
 
“The events depicted in the SIGTARP's report have since been overtaken by a new GM and a stronger dealer network to match,” the GM statement said. “More than a year since its bankruptcy, GM is showing substantial progress.
 
“The company's business performance is stronger, sales of its four brands are up 32 percent, and it is investing billions of dollars in its plants and bringing several thousands back to work. The new GM is also moving forward to improve dealer relations and has already reinstated several hundred dealers and completed the arbitration hearings for the remaining dealers who filed cases,” the statement added.
 
The inspector general’s audit also said the closing of plants lacked transparency.
 
“Just as troubling, there was little or no documentation of the decision-making process to terminate or retain dealerships with similar profiles, making it impossible in many cases for SIGTARP to determine the causes of deviations from the supposedly objective criteria,” the audit says.
 
The GM statement said the firm was completely cooperative with the inspector general’s office.
 
“Throughout its review, GM cooperated fully with the SIGTARP to best document the company's efforts, as well as the criteria and numerous business factors used in GM's dealer wind-down and appeals process,” the statement said. “The GM which existed at that time did its best to develop and implement an objective dealer consolidation process under extraordinary circumstances.”