As Obama hails auto bailout, rise in unemployment rate dampens message

On a day when America's unemployment rate ticked disappointingly upward, President Obama visited Ohio Friday to focus attention on some brighter economic news spot in the economy – a revival in the automotive industry.

The government's rescue of two major carmakers, GM and Chrysler, has worked, Mr. Obama said at a Toledo Chrysler plant. He said the move to save the companies made the recession less severe and is helping to preserve American leadership in a key industry.

His message comes as Italian carmaker Fiat announced this week that it will buy the equity stake in Chrysler now held by the US Treasury. Fiat, already a big Chrysler stakeholder alongside the United Auto Workers union, will own a majority of the company.

"Today, all three American automakers are turning a profit," Obama said, referring to Ford as well as the two firms that went through a government-aided restructuring. "That hasn’t happened since 2004."

But the president's speech in Toledo also came amid new signs of weakness in the general economy, amplified Friday by monthly job numbers that were weaker than expected. The Labor Department reported that the economy added just 54,000 jobs in May, and that the unemployment rate rose to 9.1 percent.

Obama's track record

Obama acknowledged the problems, but used the appearance to defend his track record on the economy.

"Even though the economy is growing, even though it’s created more than 2 million jobs over the past 15 months, we still face some tough times," Obama said. "This economy took a big hit.... It’s taking a while to mend."

He said the government will have to tighten its own belt after several years of record deficits, but said fiscal reforms must not come at the expense of investments in science, education, and infrastructure.

"Just as we succeeded in retooling this industry for a new age, we’ve got to rebuild this whole economy for a new age," he said.

Republican critics on Friday pointed to the rise in unemployment as a sign Obama's policies are failing to put the economy on track.

Bailout 'averted a collapse'

At the same time, many private-sector economists and policy analysts say the revival of Detroit automakers is a genuine tale of policy success – albeit a story that is still unfinished.

"The philosophical arguments against the government favoring one industry over another are compelling, but when viewed pragmatically, the support provided the US auto industry by both the Bush and Obama administration averted a collapse," Jeremy Anwyl, who heads the automotive website Edmunds.com, said in a written analysis on Friday.

"Without this support, we would have seen the loss of hundreds of thousands of jobs right in the middle of the worst recession in 30 years," Mr. Anwyl said.

The auto bailouts remain a matter of hot debate. Even with Fiat's move to buy out the US government's stake in Chrysler, the Treasury estimates that the rescue will still come at a cost to taxpayers.

With the transaction announced this week, "Chrysler will have returned more than $11.2 billion ... to taxpayers," the Treasury Department said Thursday. Obama said the US is being "completely repaid for the investments we made under my watch."

But an important part of the auto rescue was also undertaken by the Bush administration. In a report released this week, the White House said the US government committed some $80 billion in all to rescue GM and Chrysler. Of that, about half had been repaid as of early June.

"While the government does not anticipate recovering all of the funds that it invested in the industry, the Treasury’s loss estimates have consistently improved – from more than 60 percent in 2009 to less than 20 percent today," the report said.

A loss of 20 percent of the bailout money would amount to $16 billion.

The White House report said the rescue effort, by averting the outward-rippling effects of an auto industry collapse, saved the government "tens of billions of dollars" in things like unemployment insurance and foregone tax receipts.

As the US exits its ownership stake in Chrysler, Obama's critics have less fodder for trying to pin him with the tag of "socialist." Also aiding his cause on that front: Republican presidential hopeful Mitt Romney issued a reminder that he proposed a similar government-aided restructuring for the industry before Obama announced his plan.

Next steps

On Friday, Obama called the industry's turnaround "improbable."

In some ways that's true. Industry analysts are impressed by progress at GM and Chrysler, and also at Ford, which got no bailout money. Adapting to shifts consumer preferences, the carmakers are developing smaller and more efficient vehicles that are selling well. And they've been winning back customers even in models not known for fuel efficiency – like nameplates from GM's Buick and Chrysler's Jeep brands.

Unexpected difficulties at Toyota – and then at all the Japanese carmakers since the recent earthquake – have also cut the Detroit Three some competitive slack.

But the Detroit rebound also followed a carefully scripted plan. Through bankruptcy, Chrysler and GM were able to shed debts and rework key agreements with organized labor, making them more competitive with foreign-based rivals.

Now both the auto industry and the broader economy face the test of building fresh momentum. US auto sales sagged in May, as high gas prices weighed on consumer spending in general. The economy's overall growth rate has dipped to below 2 percent, prompting economists to worry about disappointingly slow growth.

Martin Regalia, chief economist for the US Chamber of Commerce, a group representing many businesses, said he expects the economy to gain "a bit more momentum towards the end of the year." But he complained that a "mountain of new regulations" is one of the key factors hindering job growth.