Auto town Kokomo on the mend, but bailout still divides

Back in his town's darkest days, Jeff Shrock, a third-generation autoworker, would cruise down the streets where he grew up, past the foreclosed homes and four giant Chrysler factories, knowing their future — and his job — were in jeopardy. He sometimes imagined the worst.

"I wondered what would happen five, six years down the road when the weeds were growing in parking lots and the plants had their windows broken out," he says. "What would the community look like then?"

These were not far-fetched fears. Kokomo had made an ignominious Forbes list of fastest-dying communities in America. The recession and collapse of the U.S. auto industry had battered the town. Three major employers — Chrysler, General Motors and Delphi, an auto parts supplier — had filed for bankruptcy. Hundreds of workers were laid off. Unemployment briefly topped 20 percent.

Shrock, who'd risen from Chrysler machine operator to a United Auto Workers international representative, was worried. It wasn't just 4,000 Chrysler workers. He was also thinking about some 10,000 auto retirees in the county and their pensions.

During that tense first half of 2009, Shrock wondered if the automakers — and his city — would endure. The Obama administration had pumped in more than $60 billion to fund GM and Chrysler's bankruptcies, but there were no guarantees.

"I had a lot of personal doubts, but whenever I walked out the door, I never showed that," Shrock says. "People had enough burden on them already, not knowing if they were going to have a job. They had mortgages. They had kids in school. They had car payments. They had credit cards. The last thing I wanted in their mind was this was not going to work."

Flash forward. The U.S. auto industry has staged an amazing comeback, and the town's largest employer, Chrysler, has pledged to invest nearly $1.3 billion into its plants here, added about 1,000 workers and helped boost Kokomo's fortunes — it was honored in 2011 by the state chamber of commerce as Community of the Year.

But the resurrection of U.S. automakers has done little to resolve a deep political divide over the bailout. Democrats, led by President Barack Obama, call it an undeniable success. The Republican presidential candidates, most notably Mitt Romney, condemn it as government meddling, both unfair and unnecessary, and even some Indiana politicians agree.

To many folks in Kokomo, though, the political debate seems disconnected from this reality: Kokomo survives.

History in autos

Detroit is America's car capital, but Kokomo has its own proud role in auto history.

It started in 1894 when Elwood Haynes, an enterprising inventor with a thick mustache and Chaplinesque bowler, towed his gas-powered carriage to a winding road on the southeast edge of town called Pumpkinvine Pike. He drove off, puttering along at 7 mph — and becoming one of the early auto pioneers.

That road test, though, was just one of many auto distinctions for this "City of Firsts." Among them: First carburetor, first push-button car radio, first pneumatic tire.

More than a century later, Kokomo had cemented its reputation as a car city. Though Chrysler and GM have reduced their work force in Kokomo over the years, the two companies and suppliers account for more than 20 percent of all jobs, and the ripple effect is many times that.

It's the kind of town where family reunions can be measured in how many generations of fathers, brothers and sons toiled on a Chrysler or GM line (or both). It's also a community where workers live with uncertainty. Shrock still remembers his father wondering if he'd have a check to cash in 1979 when Chrysler was drowning, and then-CEO Leo Iacocca begged the federal government for help.

More than 30 years later, he was a silver-haired father himself, he and the Chrysler workers were facing a similar situation — and Kokomo still was at the mercy of the auto economy.

The threat of shuttered plants, a mass exodus and blight — a familiar site among aging steel and auto communities across the Midwest — loomed large.

A Brookings Institution report said the demise of all auto-related jobs could result in the staggering loss of more than half of all area employment.

Laura Sheets, chair of the board of the Greater Kokomo Economic Development Alliance, sensed that worry when she headed United Way's community campaign in 2009. Knocking on the doors of businesses for charitable contributions from workers, "there was such a dread, so much uncertainty," she says, "no one wanted to say what they were thinking. No one wanted to verbalize how bad things could be."

It wasn't as if Kokomo could instantly transform itself. "How do you replace that big of a footprint?" she says. "People would say, 'How could you be so dependent on one industry?' But that's what we do."

The trouble, though, extended beyond autos. A pottery plant had already moved to China, eliminating 150 jobs. The housing crisis had taken hold, too. In 2009, 40 percent of home sales in Kokomo were foreclosures, says Paul Wyman, owner of a real estate company and a Howard County commissioner. At its worst, in the first quarter of that year, average home sales plummeted to about $30,000, compared with $110,000 in the previous two years.

"We saw a lot of fear and some sense of hopelessness," says Judy Dennis, director of the county's Family Service Association, which set up a foreclosure prevention counseling service. "There was a panic. We had so many people calling afraid they would lose their jobs. … The feeling was, 'Am I going to be next? What will I do? Where will I go?"

For Brian McKinley, a 42-year-old Chrysler engineer, those questions took on new urgency. He was already dealing with a divorce, the death of his mother, a pay cut and a layoff as the plants closed their doors during the bankruptcy.

"I didn't know if I was going to ever have my job back," McKinley says. "Everything looked bad in every direction. There didn't seem to be much opportunity to go anywhere or do anything else because the whole country was in bad shape."

He also wanted to stay put to be near his two children. "There wasn't a choice," he says.

Visiting reporters would ask Mayor Greg Goodnight: What are you going to do if the bailout and bankruptcy fall through?

"It's kind of like someone asking me what would you do right now if we had an earthquake, a tsunami and seven bank robberies at the same time? You do what you have to do," he says. "But I can't think of a worse-case scenario, economically."

Goodnight, a Democrat, knew some folks disapproved of the bailout. Once, a drug store clerk told him the government should let the automakers fail. "I said, 'Look out the window. Who do you think helps pay for these roads, these street lights … who do you think pays for our schools, our teachers?'"

Chrysler, Delphi and GM account for up to 20 percent of the city's revenues directly from property taxes, he says, and that doesn't take into account taxes paid by their workers.

"Why anyone in a logical sense would ask for the largest employer in their community to be liquidated … is not thinking rationally," he says. "At some point, government has to be the stabilizer."

This wasn't just a Democratic attitude. Wyman, the county commissioner, compares the auto meltdown to Hurricane Katrina — both of them catastrophes demanding extraordinary measures.

"As a Republican, I can tell you I'm for smaller government every day of the week," he says. "But there is one thing I expect from the government and that is for government to respond to a major crisis. … It worked and now the government should get out."

Wyman points out that a Republican — former President George W. Bush — approved $17.4 billion in bridge loans to Chrysler and GM after Congress failed to approve emergency aid. (Bush recently defended his action, saying "sometimes circumstances get in the way of philosophy.") The automakers had to develop restructuring plans once Obama took office.

Both presidents, Wyman says, deserve credit.

"If it had gone the other way, our community would have been devastated," he says. "In hindsight, it was the right thing to do."

Unfair bailout?

That's not how Indiana Gov. Mitch Daniels sees it.

He says the GM and Chrysler bailout was a clear case of favoritism. "I was all over this state visiting with companies large and small that were in extremely difficult shape and nobody in Washington came around to wipe out their debts or write them a check," he says. "There was just an unfairness about it."

He and other critics maintain the rescue violated bankruptcy laws. Richard Mourdock, Indiana's treasurer, unsuccessfully sued to stop Chrysler's sale to Fiat SpA on behalf of three state pension and construction funds representing teachers, police, and others.

He argued the sale of the majority of the automaker's assets favored unsecured stakeholders, such as the UAW, ahead of secured debtors in the funds. "How many of us believe that the U.S. government should pick winners and losers?" he asks. "Nobody agrees with that."

Mourdock, now a U.S. Senate candidate in the GOP primary, estimates the funds lost about $7 million during the bankruptcy.

Obama has trumpeted the auto recovery as one of his signature achievements — Vice President Joe Biden recently said his re-election message should be "Osama bin Laden is dead and General Motors is alive" — but the public is less enamored.

A recent Gallup poll found 51 percent of Americans disapprove of the bailout, compared to 44 percent who like it. There's a stark party line difference: 63 percent of Democrats approve, 73 percent of Republicans oppose it.

No Republican presidential candidate has been a more vocal critic than Mitt Romney, whose father, George, ran the long-defunct American Motors Corp. In a 2008 op-ed in the New York Times titled, "Let Detroit Go Bankrupt," he called for a managed bankruptcy, followed by some government assistance, such as guaranteeing warranties

In that piece, he predicted if U.S. automakers received the bailout "you can kiss the American automotive industry goodbye. It won't go overnight, but its demise will be virtually guaranteed."

At least in the near term, his fears have not been realized. GM reported a record $7.6 billion profit last year. Chrysler, now privately held and majority owned by Fiat, earned $183 million in 2011, its first net profit since 1997.

In advance of Tuesday's Michigan primary, Romney defended his position in a Detroit News op-ed, calling the Obama administration's plan "crony capitalism" and a payback to his union supporters. He said the auto industry would have fared better without the intervention.

Sean McAlinden, an economist at the Center for Automotive Research, which receives funding from the automakers, says the union did get "one of the better deals in the history of bankruptcy" — its members' pensions were untouched and the UAW retirees health care trust funds own part of the companies.

But he points out that the UAW also agreed to a series of trade-offs and concessions. New workers, for instance, earn a much lower wage.

And McAlinden is among those who dispute claims by Romney and others that the industry would have survived with a managed bankruptcy.

"This sounds like a wonderfully sensible approach — except it's sheer fantasy," Steven Rattner, chief adviser to Obama's auto task force, wrote last week in a New York Times op-ed. He says there was no private financing available and without federal dollars, the automakers wouldn't have been able to pursue Chapter 11 bankruptcy and "would have been forced to cease production, close their doors and lay off virtually all workers once their coffers ran dry."

Those closings, he says, would have rippled to auto suppliers, and ultimately trucking companies, restaurants and other parts of the economy.

David Cole, chairman emeritus of the auto center, agrees.

"It has nothing to do with favoritism," he says. "It has to do with 'no choice-ism.' … The people who say we should have stayed out have no clue to what the risk was. It would have precipitated a dramatic job loss, which would have likely pushed the rest of the economy into a full-scale depression."

The center reported in 2010 that the bailout had saved 1.1 million jobs in 2009.

"It may not have been exactly the right way to do it, but it had to be done …," Cole adds. "It really was too big to fail."

Winners and losers

The auto bailout had winners and losers. Some towns lost plants; Kokomo's were saved.

"I feel we were given a lifeline," says the mayor, who thanked the president when he visited Kokomo in 2010. "But do we now sit back in our easy chairs and say Chrysler's good for the next five, 10 years? No. … We can't become content with just that. This is our chance to build on top of it."

There's much building to do. Unemployment in Kokomo — home to nearly 57,000 people — tops 10 percent and a network of local food pantries serves 1,100 families a month, mostly in the city, compared with 400 in the pre-recession days. Home foreclosure sales remain high.

But the real estate market is stronger; the average housing price in recent months has topped $70,000. The United Way's community campaign last year raised almost $1.8 million — $80,000 more than its goal. More than 20 businesses have opened or expanded since 2010.

A new regional Fed Ex hub is due to open soon. Local and federal funds have been used to improve downtown, launch a public transit system, build a park pavilion, buy foreclosed homes, rehab and sell them to low-income buyers, then use the proceeds to demolish an abandoned factory and build townhouses.

And yet, there's still a wariness among some autoworkers.

"I think it's too early to say that it's completely worked," says Brian Hecht, an 18-year Chrysler veteran and third-generation autoworker. "We need to prove to the taxpayers their loan to us was a good thing to do."

Chrysler and Fiat have paid back all but $1.3 billion of Chrysler's $12.5 billion bailout. And the government has recouped more than $22 billion of its nearly $50 billion GM bailout, after agreeing to take stock in return for most of its investment.

It's that kind of record that makes McKinley, the Chrysler engineer, wonder why there's still any debate.

"At this point," he says, "how could anybody argue that it was the wrong thing to do, because it worked."