Obama stalls in Michigan, despite auto bailout

President Obama is locked in a tough race with Mitt Romney in Michigan, despite having provided $85 billion in government loans to bail out two of the Big Three automakers.

By The Fiscal Times Jul 20, 2012 1:30PM
By Eric Pianin The Fiscal Times

DETROIT – President Obama has told Michigan voters that his decision to use $85 billion in federal loans to bail out General Motors and Chrysler saved over a million manufacturing jobs in the Midwest, created 128,000 new jobs and helped rejuvenate the Wolverine State’s long-troubled economy.

His campaign stresses that the president was willing to step in to restructure two of the Big Three automakers with direct federal assistance, while Republican challenger Mitt Romney would have let the industry undergo a “managed bankruptcy” with no guarantee the companies could have found private financing. “People remember his position, which was, ‘Let’s let Detroit go bankrupt’ and his opposition to government involvement in making sure that GM and Chrysler didn’t go under,” Obama said of Romney in an interview with ABC News this spring.

But with Obama now locked in an increasingly tough reelection battle, some of his allies are cautioning that the auto industry bailout alone won’t put Obama over the top in Michigan, a key battleground state that he carried by 16 percentage points in 2008 but that is now up for grabs.

They say he must do a better job of highlighting other sectors of the state’s economy that have benefitted handsomely from the administration’s largesse – particularly the slew of renewable energy companies that have sprung up throughout the state in recent years along with a fledgling battery manufacturing industry that powers hybrids and electric cars.

Sen. Debbie A. Stabenow, D-Mich., said that Obama would be smart to enlighten Michigan voters about how his policies have been strengthening the state’s economy well beyond the auto industry. “I think the president understands the importance of making things in America, as well as he understands the importance of having a [vibrant] automobile industry,” Stabenow told The Fiscal Times. “I think [he must stress that] we have to keep investing in the future – in advanced batteries and new clean energy manufacturing.”

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Eric Shreffler, an official with the Michigan Economic Development Corporation, agrees that Obama’s record of spurring Michigan’s clean energy and battery manufacturing industries has been overshadowed by the debate between Obama and Romney over which of them had the better approach to addressing the auto crisis. “It seems like [the administration’s investment in clean energy and battery manufacturing] is a good thing to be talking about if you’re in the Midwest and are used to the types of industries we have here – the manufacturing capacity and capability,” Shreffler said on Monday. “But ultimately, poll numbers and votes are going to have to decide whether [Obama’s focus on the auto bailout] was effective or not.”

The tight battle in Michigan between Obama and Romney, the former Massachusetts governor and head of Bain Capital, largely mirrors the contest nationally, with the two opponents in a virtual dead heat. A recent EPIC-MRA poll of likely Michigan voters showed Romney with a slender lead over Obama, 46 percent to 45 percent. An April poll by the same Lansing-based firm showed Obama ahead by four percentage points.

EPIC-MRA co-founder John Cavanaugh attributed the president’s flagging support to a sustained advertising attack from pro-Romney Super PACs, which have flooded Michigan’s airwaves with ads criticizing the president’s handling of the economy. Romney also enjoys a substantial GOP following in Michigan, where he grew up and where his late father, George Romney, was governor and an auto industry executive.

Michigan is home to more than 240 solar and wind supply chain companies, with more than 4,000 jobs tied to the wind industry and 6,300 to the solar industry, according to a study by the Environmental Law and Policy Center. Clean tech is the state’s fastest growing sector, with $10 billion in announced clean energy development projects in the pipeline. While that’s small potatoes compared with the auto industry, Michigan still ranks fourth in the nation for number of jobs in the solar industry and first for clean energy patents.

Shortly after Obama took office in 2009, the Department of Energy began to open the floodgates of federal grants and  loans to advance research and development of new clean air technology and to build a U.S.-based battery manufacturing base to service electric vehicles and hybrids, such as the Toyota Prius and Saturn Aura. At the time, manufacturers of these alternative vehicles imported 98 percent of the batteries used in their cars.

Using the president’s signature economic stimulus program, the Energy Department provided $2.4 billion of federal grants to 48 domestic electric-vehicle battery and component  manufacturing companies across the country, including $1.1 billion to companies operating in Michigan, according to the Energy Department and  the Michigan Economic Development Corporation.

Of all 50 states, Michigan companies received the largest share of grant funding nationwide. The companies included A123 Systems, Inc., the Milwaukee-based Johnson Controls Inc., LG Chem, Dow Kokam and General Motors. Taken together, those plants were expected to hire between 2,000 and 3,000 workers by this summer, according to state estimates.

“The grants and loans made under the Recovery Act were intended to set up an American industry, and build that industry so that the United States would be competitive in what is a growing industry over the long term,” Jen Stutsman, the Department of Energy’s press secretary, told The Fiscal Times. “We know so far the size of this market is growing at dramatic paces, and we know it will continue.”

In Southeast Michigan, A123 opened plants in Livonia and Romulus. The Waltham, Mass. battery maker was backed by a $249 million Energy Dept. grant and $125 million in incentives from the state. In mid-Michigan, Dow Kokam has built a $322 million Midland battery plant, supported by a $161 million Energy Dept. grant and $180 million in tax incentives from the state.

Across the state in Holland, Johnson Controls Inc. opened its lithium-ion battery cell plant last July. LG Chem is also building a $300 million factory in Holland to produce batteries for the Chevrolet Volt and electric Ford Focus, and received a $151.4 million grant. Obama used a visit to that plant last August to promote his program to create jobs through clean energy.

“At a time when Americans are rightly focused on our economy, when Americans are asking about what’s our path forward, all of you here at Johnson Controls are providing a powerful answer,” Obama said nearly a year ago. “This is one of the most advanced factories in the world. You’re helping America lead in a growing industry.”

Jay Carney, the White House press secretary, told reporters back then that the batteries are among the innovative technologies to help automakers achieve the “historic” fuel efficiency standard of 54.5 miles per gallon by 2025 that was set by Obama.

But the Energy Dept.’s high-priced alternative energy initiatives have suffered several major setbacks – especially its ill-fated $527 million government-backed loan to Solyndra, a Fremont, Calif. solar energy panel  manufacturing plant that went bankrupt and ceased manufacturing in September 2011.

Moreover, some of the ambitious plans that federal and state officials have for electric cars and battery manufacturers in Michigan have collided with declining consumer demand. For now, with gas prices falling, many Americans have lost interest in electric cars, according to a report by Crain’s Detroit Business website.

Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, contends  that more battery capacity was built with the help of the government than could be “remotely justified” by the market, and that the problem has grown “even more so” in recent months.

Last year, the entire market for hybrids and electric vehicles totaled less than three percent of overall U.S. sales, according to Crain’s Detroit Business report. GM last March stopped production of the Chevy Volt after months of poor sales.

Shreffler, who has specialized in the advanced battery industry and electric cars, disagrees with McAlinden’s assessment and says the federal government and state made a good investment in an important industry still in its infancy.

“I think if you asked any of the cell manufacturers and any of the suppliers and certainly any of the automakers, they would say we wish the market was a little stronger than it currently is,” he said in an interview. But he added that cell manufacturers are capable of scaling back production and still remain viable until the hybrid and electric car market makes a comeback.

“There’s not necessarily all doom and gloom with the way things are starting off because these companies have the ability to operate, because of their automated production lines, at lower quantities than maybe traditionally people would think,” Shreffler said.

Eric Pianin is the Washington Editor at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.


14Comments
Jul 24, 2012 8:25AM
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Romney needs to show Michigan that Ford recovered on it's own. This made the Ford company stronger. It had the side effect of saving the tax payers $$$$$$billions. Time for a media campaign to show how Obama's people pushed for the  "Chevrolet Volt" or is that "Chevrolet Vote"?
Jul 20, 2012 9:36PM
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Unlimited Resources? You're kidding, right? Republicans have blocked every attempt by the president to help the economy. Just ask Mitch McConnell. Their #1 goal is to beat him to get political power, the economy be damned. You lose your job? Who cares, great if it helps defeat Obama. All of the austerity and balance the budget crap is just a smoke screen to trash the economy so they can regain power. Just ask Mitch.
Jul 21, 2012 11:15AM
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Let the free market decide what we produce, not Obama!!!
Jul 22, 2012 6:55AM
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The government can't intervene in a free market forever, although BO will give it a good shot. Reagan had to deal with a 13-14%  inflation rate and a 20% + interest rate; plus his unemployment rate was higher tha BO's and is the highest since the Depression. At some point in time, the market is going to go where it goes and all hel- will break loose. I believe inflation will be the highest on record and interest has no way to go but up. This QE this and that,  keeping the discount rate low, is stalling the inevitable. BO might figure he'll be out of office and they can blame it on a republican again. What helped save the auto industry was GM getting rid of Hummer, Saturn, Pontiac, Oldsmobile, and those other non profit lines. Left to their own devices, GM and Chrysler would be gone now. Ford was the only to get through on their own.
Jul 21, 2012 12:16PM
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The government can't run it's own business. Stay out of the private sector. People in Government simply aren't smart enough. They aren't economists, business people, or managers of manufacturing. They are law makers (lawyers) and career politicians. They have no knowledge or business experience to determine what private industry should do. It's like asking a chef to fix your transmission.
Jul 21, 2012 4:08PM
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The government can do nothing but get in the way.  Remember back in the 60's when the grand governmental experiment engineered by Cavanagh called the "Model Cities Program."  This was to involve a 9 square mile section of Detroit and use centralized planning to develop it into a model city.  Well how did that work out for you?  Over 800 billion has been spent by officials in Detroit which has resulted in nothing but failure.  Government needs to get out of the social engineering business as all it does is sap initiative and trap people in poverty.  It will never work and I can only hope people pick themselves up by their bootstraps and place the blame where the statistics lead them.  That is the Democratic party has done nothing but destroy initiative, families, self-reliance, and pride. 
Jul 21, 2012 9:16AM
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Nissan was ready to takeover Chrysler before the (2nd) government bailout. President Obama bailed Chrysler out for Fiat's benefit.

 The only way to save the auto industry (long term) is to let it contract. Mergers are a must. There are more producers than consumers.

Jul 20, 2012 5:18PM
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Maybe with all the focus on Romney being head of Bain Capital and his record...maybe we ought to start calling the POTUS President of Tax Payer Capital and look at his dismal record with unlimited resourses.....hmmmm
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