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The Globe and Mail

There is peril for Obama in touting the auto bailouts

There is no cost-benefit analysis that could possibly measure the sheer relief the government bailouts of GM and Chrysler brought to hundreds of thousands of auto workers - on both sides of the Canada-U.S. border.

The human toll taken by an already devastating economic downturn might have risen exponentially had the two North American car giants been left to collapse, taking their suppliers and perhaps even Ford with them.

But by launching a political offensive touting the auto bailouts as an economic success story, Barack Obama is taking a big risk. Even in the Rust Belt states that most benefited from the $80-billion (U.S.) Washington pumped into GM and Chrysler, the bailouts remain controversial. Elsewhere in the country, they are seen as nothing short of heretical.

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The President's self-congratulatory tour of an Ohio Chrysler plant on Friday also raises a question about the bailouts that he will now have to confront on the campaign trail in 2012: Would he do it again?

"What would life be like in Toledo if you didn't make these cars?" Mr. Obama told the Chrysler workers who make Jeep Wranglers. "I put my faith in the American worker. And I'll tell you what - I'm going to do that every day of the week, because what you've done vindicates my faith."

Sluggish May sales figures notwithstanding, the Detroit Three auto makers are a rare bright spot in an otherwise dreary economic picture. On the day Mr. Obama was talking up the bailouts in Ohio, the Labour Department released a dismal May jobs report.

The world's biggest economy generated a scant 54,000 new jobs last month. News that the unemployment rate rose to 9.1 per cent capped a week of grim economic data, raising the prospect of more of the same ahead.

No one can blame Mr. Obama for finding a silver lining. The White House had prepared for the bleak jobs report by releasing a slew of data this week on the "resurgence of the American automotive industry."

"Since GM and Chrysler emerged from bankruptcy, the auto industry has created 115,000 jobs, its strongest period of job growth since the late 1990s," one White House study explained. "GM, Ford and Chrysler have all returned to profitability, and in 2010, the Detroit Three gained market share for the first time since 1995."

In truth, it is too early to declare the auto bailouts a success. The U.S. car makers still have a lot to prove. And they may owe their recent mini-revival as much to bungling by their Japanese competitors as to Mr. Obama. Besides, many of those 115,000 new auto industry jobs the administration boasts about are at foreign-owned plants, such as the Volkswagen factory that opened last month in Chattanooga, Tenn.

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If Mr. Obama really wanted to trumpet a successful bailout executed on his watch, he would be touring Wall Street instead of Toledo.

The stakes involved in rescuing the U.S. financial system made the auto bailouts look inconsequential by comparison. Instead of seeing one manufacturing sector crater, the collapse of the banking system would have taken down the entire global economy indefinitely. The U.S. unemployment rate would today be a multiple of 9.1 per cent instead of in the single digits.

What's more, the U.S. taxpayer has pocketed a profit in excess of $150-billion on the bank bailouts and bond purchases undertaken by the Federal Reserve. When all is said and done, the U.S. government expects to lose $14-billion on the auto bailouts.

Just don't expect the Obama 2012 campaign to take any of the "credit" for saving the U.S. financial system. If the auto rescue remains a tough political sell outside the Rust Belt, the country is united in condemning the bank bailouts. Saving the jobs of blue collar workers is politically defensible; saving those of "fat cat" bankers is unforgivable.

Hence, the President's auto offensive. Ohio, Indiana and Michigan are expected to be key battleground states in the 2012 race. Mr. Obama won all three in 2008, but Republicans swept them in last fall's midterm elections.

It is no surprise Democrats have seized on a late 2008 op-ed in The New York Times titled "Let Detroit Go Bankrupt." It was written by Mr. Obama's prospective 2012 rival, Mitt Romney, whose late father once ran American Motors before becoming governor of Michigan.

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In the piece, Mr. Romney advocated a "managed bankruptcy" of GM and Chrysler nearly identical to the one that was eventually forced on the companies by the Obama administration. It included a renegotiation of labour contracts, new management and investments in retooling. But the linchpin of the restructuring was $80-billion in government loans.

The results have so far exceeded expectations. But does Mr. Obama really want to go into the 2012 campaign suggesting he'd do it again?

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