Romney’s Double Detroit Problem
As the Michigan primary approaches, it’s been lots of fun watching Mitt Romney’s campaign try to explain the candidate’s position on the highly successful federal bailout and restructuring of the American auto industry.
Romney’s first problem arises from a New York Times op-ed piece that ran on November 18, 2008. Romney opened that piece with an attention-grabbing line: “If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye.” An editor slapped on an even more attention-grabbing headline: “Let Detroit Go Bankrupt.” But as spelled out in the rest of his piece, his position was not especially unreasonable.
Romney’s position was that the auto industry had excessive costs that made it uncompetitive. He said that Detroit’s higher costs made an American car $2,000 more expensive than a comparable foreign car, putting American cars at a huge competitive disadvantage. Therefore the industry needed to restructure, and simply cutting bailout checks would enable the industry to avoid restructuring and continue with business as usual. Romney called for slashing executive salaries and perks, reducing union laborers’ wages and pension benefits, imposing losses on shareholders and bondholders, increasing federal investment in research and development of fuel efficiency, and putting the big auto companies through “managed bankruptcy” by which “the federal government would propel newly competitive and viable automakers.” Romney called for a new era of “collaboration” between auto executives and unions.
That sounds like a great plan. It sounds a lot like what actually happened, although we may have come out a little light on the federal investment in research and development.
So by all rights Romney should be saying, look how great Detroit is doing – all because the government did what I said it should do. But that would mean agreeing with the Obama Administration – toxic to today’s Republican right. Collaboration between management and labor is fine, but between Republicans and Democrats? – not on your life.
If Romney can’t take credit for Detroit’s success, he has to deny that it was a success. So his line has been to condemn the auto industry bailout. And that’s Romney’s second problem.
In September 2008, Detroit asked for $50 billion in federal loans to meet expenses and avoid bankruptcy. Congress authorized loans on conditions, and the Bush Administration worked out a deal for $17.4 billion in emergency loans. The loans came with strings, including a requirement that the borrowers produce plans by March 31, 2009 for restructuring and return to profitability. President-elect Obama endorsed the plan, even though the Bush loans passed the buck to the Obama Administration and left it just two months after inauguration to do the heavy lifting.
The Obama folks ultimately put the industry through managed bankruptcies and gave the American auto companies a chance to compete. Pretty much every stakeholder took a financial hit, and there’s plenty of room for argument over the details – was executive pay cut enough, were union benefits cut enough (or too much), did non-union labor take an unfair hit, did the taxpayer give too much? My own view is that the federal effort was a huge success, a truly outstanding example of the value of government stepping in where private enterprises fail, and that all the rest is details.
So what is Romney saying now? He says that he didn’t object to the bailouts per se, he just objected to how Obama carried them out.
I’ve seen three versions of this. The first and silliest version has a Romney surrogate claiming that Romney’s objection when he wrote the November 2008 op-ed was not to the bailouts but to how Obama was carrying them out. Unfortunately for this tale, in November 2008 Obama wasn’t carrying out anything except interviews for his future cabinet. Still, I actually saw Soledad O’Brien let a Romneyist get away with it.
The second version is Romney’s appeal to the Republican right. The federal government should have arranged for private loans to the auto makers. The appeal is to those who oppose federal involvement in pretty much anything, like the conservative voters who dominate Republican primaries, including Michigan. The argument seems to be that the auto companies needed “capital,” not federal loans – which pleadingly begs the question why private money is capital but federal money is not.
That glitch aside, this argument has the corporate business wing of the Republican party furious. It neglects the fact that the auto industry had no credit in 2008 – 2009. The auto companies had maxed out their credit cards – private financing just wasn’t there. It also neglects the fact that the Obama Administration tried to find private financing. (One of the places they tried was Bain Capital, which turned them down.) If private financing wasn’t available, there was no choice but federal financing. The more pragmatic corporate Republicans are concerned that by refusing to recognize this Romney is selling out to the radical right, which business Republicans have always regarded as necessary but embarrassing, sort of like a slightly deranged born-again cousin who won’t shut up at family events.
The third version appeared in another Romney op-ed, this time in the Detroit News on Valentine’s Day. Finally Romney acknowledged that his November 2008 proposal for structured bankruptcy is “what happened.” (Romney’s strategic use of the passive voice lets him take credit for having his plan followed without giving Obama credit for having followed it. Sort of like health care.) Romney’s objection is that unionized labor came out too well. The auto workers’ union came out with a big ownership stake in Chrysler at the expense of “secured creditors,” Romney beefs, and workers at GM’s auto parts supply company kept their pension benefits.
Romney tries to spin this as Obama helping campaign contributors, and he accuses Obama of “crony capitalism” – which might be a relief for an administration accustomed to being called socialists. But Romney doesn’t mention who those “secured creditors” might be, who he would have preferred to help. One suspects that there’s more than one Romney-Bain “crony” on that list.
So Romney’s charge is that President Obama went too easy on labor, and his explanation is campaign contribution pay-back. He forgets that all this happened in the pits of the financial melt-down, as unemployment was soaring. Like everyone else involved, labor took its hit in the bailouts, but busting labor was surely not the way to go in early 2009.
President Obama took the Bush Administration hand-off and achieved a remarkable success under extraordinary economic conditions and extreme time constraints. Three years later, Romney wants to argue about the details.
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UPDATE: Take a look at this op-ed, by Steven Rattner, from the February 24, 2012 New York Times. Rattner was the lead advisor to President Obama’s auto industry task force in 2009. In his op-ed, he slam dunks Mitt Romney on the bail-outs.