The Detroit Bailout is Working

Steven Pearlstein describes a signal success for big government:

The irony is that this set of bold government initiatives that saved the country from economic catastrophe remain as unpopular today as when they were introduced.

Perhaps none was more controversial than the decision to rescue Chrysler and General Motors, using $86 billion in taxpayer funds and an expedited bankruptcy process that wiped out shareholders, brought in new executives and directors, forced creditors to take a financial haircut, closed dealerships and factories and imposed painful cuts in wages and benefits on unionized workers. It was an extraordinary and heavy-handed government intervention into the market economy that left the Treasury owning a majority of both companies. As one participant recalls, public opinion was divided among those who believed that the companies should have been allowed to die, those who believed they would never survive bankruptcy and those who believed the government would inevitably screw things up. . . .

A year later, the auto bailout is an unqualified success. The government used its leverage to force the companies to make the painful changes they should have made years before, and then backed off and let the companies run themselves without any noticeable interference.

The results, which President Obama will tout on a visit to Michigan on Friday: For the first time since 2004, GM and Chrysler, along with Ford, all reported operating profits in their U.S. businesses last quarter. The domestic auto industry added 55,000 jobs last year, ending a decade-long string of declines. Auto sector exports are up 57 percent so far this year and, thanks largely to new government regulations, the industry is moving quickly to introduce more fuel-efficient vehicles. Most surprising of all, GM and Chrysler have already repaid more than $8 billion in government loans, while GM is preparing for an initial stock offering later this year that would allow the government to recoup most, if not all, of its investment.

The critics who said the government would "inevitably" misuse its power and force the companies to do politically appealing but unprofitable things have been proved wrong. The treasury officials responsible for the restructuring have been focused from the beginning on making the companies profitable again, and they have interfered hardly at all in the day-to-day management of the companies. And far from trying to consolidate their ownership and socialize the industry, the government is trying to sell its stock as fast as it can. Bailout skeptics are pointing to the Chevy Volt as a looming, government-mandated disaster. But planning for the Volt has been going on for years and GM publicly committed to its production back in 2006, so while it is true that the government has been pushing for electric cars since the Carter administration, Bush and Obama can hardly be blamed for this particular lemon -- if such it turns out to be.