NEW YORK (CNNMoney.com) – President Obama ended his first 100 days in office amid hopes that both General Motors and Chrysler Group might both still avoid bankruptcy. In his second 100 days, he created a new U.S. auto industry.
The reshaping of GM and Chrysler through bankruptcy is essentially complete, and the Treasury Department holds large stakes in both companies.
There is arguably no segment of the economy where the administration has had greater impact than in the auto sector. And there's also no accomplishment that surprised experts more.
"It was a remarkable feat, and it surprised a lot of people," said Dave Cole, chairman of the Center for Automotive Research, a Michigan think tank.
Some critics aren't convinced that a speedy bankruptcy was the right thing to do. Chrysler filed for bankruptcy April 30 and was out of bankruptcy on June 10. GM filed for bankruptcy on June 1. It emerged from Chapter 11 protection on July 10.
During the government-directed reorganizations, both companies shed tens of billions of debt and made deep cuts in their bloated dealership network, despite efforts by some members of Congress to protect the dealers.
But Jeffrey Manning, managing director at investment bank Trenwith Securities LLP, argues the companies would have been better off if the bankruptcy process took as much as nine months or a year. That way, the companies may have been forced to make even bigger changes to their operations.
Manning said the government's ability to convince bankruptcy judges in the two cases to accept that its plan was the only alternative, despite objections from some creditors, was a shock and could cause problems for the two automakers and other companies down the road.
Manning said lenders are going to be more wary about lending money to companies that are viewed as politically powerful, such as automakers, airlines and aerospace and defense manufacturers, for fear that they won't have the same
protections in bankruptcy that they once did.
"Borrowing is going to be more expensive," Manning predicted.
Regardless of whether the reorganizations fail or succeed, one thing is certain: the Obama administration will either get all the credit or all the blame.
By paying for the rescue with funds from the Troubled Asset Relief Program originally set up to fix the nation's banking system last fall, the White House was able to reshape the auto industry without any action by Congress.
The rescue came at a significant cost to taxpayers. The Treasury Department poured $19.4 billion into GM and $4 billion into Chrysler before their bankruptcy filings and is unlikely to get much, if any, of that money back.
Still, Treasury agreed to give another $30 billion to GM and $8 billion to Chrysler to fund their operations during and immediately after the bankruptcy process, loans that it hopes will be mostly be repaid through the sale of stock in both firms at some point in the future.
But at the very least, experts said that the fact that two of Detroit's Big Three are now beholden to the government for their survival allowed the White House to push for greater changes in the auto industry.
Automakers went along with tough new fuel economy standards the administration laid out in May. But Obama's push for a greener auto industry included a major carrot as well. The government-financed Cash for Clunkers
program helped jump start U.S. auto sales in July.
One thing both the critics and the supporters of the two reorganizations agree upon is that it is much too soon to declare either effort a success.
"The story is not over yet. We don't know how it ends," said Tom Libby, president of the Society of Automotive Analysts, who said the administration deserves a log of credit for the changes put in place and the pace at which it achieved the change.
"I think it's a major feather in the cap for the administration," he said. "It's something the management should have done over the last 20 years."
Manning is not as confident that enough was done to solve the industry's problems.
"Chrysler and GM took a lot of baggage with them out of bankruptcy, and they both have a lot of operational challenges," he said. "Until I can see evidence of strong consumer demand, I'm not optimistic."
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