The Romney auto ambush (The Michigan View 11.11.11)

Posted by hpayne on November 11, 2011

With relish, former Michigan Governor Granholm, the Democratic Party, and their CNBC allies ganged up on Mitt Romney at the Michigan debate with what they think is a sure-fire winner for President Obama in the key swing state of Michigan: the auto bailout.

“When the U.S. auto companies were on the brink of collapse Michigan native Mitt Romney actually went so far as to write an appalling opinion piece in the New York Times titled, “Let Detroit Go Bankrupt.'” wrote Granholm in a pre-debate column for NBC. “What if Mitt Romney Had Been President in 2009?”

When Washington “was considering financial assistance for the automakers, you said, no, let Detroit go bankrupt.” parroted CNBC debate host John Harwood Wednesday night.

In fact, Romney advocated doing EXACTLY what the Obama Administration did: Let Detroit go bankrupt.

That’s right. The 2009 Obama “auto bailout” was a “managed bankruptcy” – just what Romney had advocated in 2008. A managed bankruptcy is a restructuring of a company with government serving as financier-of-last-resort (as with frozen capital markets in the Great Recession). The difference between Obama and Romney was in how it was restructured.

“My view with regards to the bailout was. . . that it was the wrong way to go,” responded Romney coolly to Harwood’s ignorant question.

Obama “managed” the bankruptcy with a heavy federal hand to favor Big Labor, shafting private investors with a return of only 29 cents on their dollar and rewarding the UAW with large ownership stakes. As a result, the Detroit companies – despite making strides towards more competitive wages – did not tackle the fundamental workplace rules that have plagued the industry for decades.

“Had Mitt Romney been president in 2009, he would have simply let General Motors and Chrysler meet their demise,” writes Granholm. That is a flat out lie.

What would Romney really have done? Read the New York Times article that Granholm cites: “A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk,” penned the ex-Massachusetts governor.

So much for letting them “meet their demise.” In fact, Romney’s approach would have left the companies and their unions to sort out their problems while government made sure needed capital to keep crucial supply lines running didn’t dry up.

Bankruptcy experts embraced Romney’s plan.

“GM would guarantee warranty support with a segregated fund if necessary. And debtor-in-possession (DIP) financing – loans that provide the near-term cash for reorganizing companies – is very safe,” wrote bankruptcy lawyer Michal E. Levine in The Wall Street Journal in July, 2008. “It would be lined up before a filing, not after, so any problems wouldn’t be a surprise. As a last resort, we could at least consider a public DIP loan to support a reorganizing GM with a good chance to survive.”

Having erected her straw man, Granholm goes on claim that Obama’s managed bankruptcy – er, bailout – has led to resurgence in the U.S. auto industry.

“The recovery package worked, GM and Chrysler are back on their feet, and more than 1.4 million jobs that otherwise would have been lost were saved,” she writes. “A lot of the credit for the good times at General Motors, Chrysler and to a certain extent Ford is going to the bailout orchestrated by President Barack Obama.”

Nonsense. A similar resurgence would have happened under Romney’s managed bankruptcy given the government guarantees Levine describes and the solid product in the pipeline before the 2008 financial crash.

What would be different is the long-term viability of GM and Chrysler.

Under Obama’s UAW Bailout, Detroit “won’t go overnight, but its demise will be virtually guaranteed,” Romney wrote in 2008 (a bit too dramatically, I grant you). But in essence he is right. The Big Three are still less competitive than their non-union foreign competitors. The evidence? Already Chrysler CEO Sergio Marchionne is chaffing at two-tier union labor agreements.

It should also be noted that Romney’s smart, measured response (where was this measure on the ill-conceived Romneycare?) does not sit will with the black and white economics of the Right either.

As Granholm was bashing Romney from Debate Stage Left, Rick Perry was bashing Romney from Stage Right for considering any federal intervention at all. “Gannett News Service called Romney’s plan a ‘massive federal bailout,'” said Perry in a press release before the debate.

Nevermind that the release so twists the GNS quote as to border on fabrication. In fact, not providing government financing for a major manufacturing industry at a time of frozen capital markets would have been suicidal. Both Bush and Obama and Romney agreed on that much. The tragedy is that a Democratic president put his foot on the scales of a managed bankruptcy.

 

 

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