In an op-ed in today's Detroit News, Mitt Romney attempts to restate and reconfigure his argument against the government's intervention in the U.S. auto industry. He places that intervention squarely on the shoulders of the Obama administration, terming it "crony capitalism on a grand scale."
There's a lot of political strategy at work here. In the first place, this is Romney's attempt at saying something positive about his candidacy -- a must, considering he'll spend most of his money in Michigan trying to tear down Rick Santorum. He's also working to get out from under a previous op-ed on the matter, written back in November of 2008, titled "Let Detroit Go Bankrupt." (That headline was written by The New York Times, not Romney, but it's been an albatross around his neck ever since.)
To that end, Mitt Romney takes a stab at positioning himself as a "Son of Detroit," and a critic of the overall intervention. But his identification with Detroiters is pretty awkward, and his problem with how the intervention was handled really boils down to his preference for moneyed elites over Detroit's auto workers.
Romney begins like so:
I am a son of Detroit. I was born in Harper Hospital and lived in the city until my family moved to Oakland County.
I grew up drinking Vernors and watching ballgames at Michigan & Trumbull. Cars got in my bones early. And not just any cars, American cars.
Sounds fairly sentimental, right? Of course, what's omitted there is that Romney moved away from Detroit at the age of five for the Bloomfield Hills burbs and never looked back. He hasn't even lived in Michigan since he was 23 and working on his mother's failed bid for the U.S. Senate. And while it's certainly nice that he recalls the stadium that the Detroit Tigers played in up until 1999, Romney is best known for doing something no true "Son of Detroit" would ever do -- rooting for the Boston Red Sox. (Though it should be said he's not a particularly good Red Sox fan, either.)
But without some hint of Detroit nostalgia, Romney is stuck having to live his Detroiter lifestyle vicariously through his father, who became the head of American Motors Corporation in 1954 and later served as governor of Michigan. Beyond that, Romney would have a tough time relating to most of the people who live in the Motor City. According to Census data, the average yearly personal income of Detroit residents is $15,062, an amount that Romney earns in just over six hours.
But fostering that connection to the common man is a vital part of Romney's argument against the government's intervention in the auto industry. Sixty-two percent of Michigan Republicans oppose what they call the "auto bailout." But they're on an island -- only 36 percent of the state's overall population opposes the measure. Which is understandable, given its success. So, for Romney, it's a very difficult bit of triangulating. That's before we get to the fact that his chief competitor, former Sen. Rick Santorum, opposes the "bailout" with equal fervor and has more energetically argued that further steps need to be taken to shore up America's blue-collar manufacturing base.
The thrust of Romney's argument is that while Detroit has rebounded in recent years, it would have rebounded better without President Obama's actions, which were too favorable to unions and were headed up by the "politically connected and ethically challenged Obama-campaign contributor ... financier Steven Rattner." The criticism of Rattner is apt -- Marcy Wheeler notes that Rattner got picked for the job, in all likelihood, because he is "a schmoozy insider with a great talent for self-promotion." (Though anybody who thinks Romney won't feather the nest of his own schmoozy pals is probably kidding themselves.)
It's going to be a challenge to mount the argument that the solution that the Obama administration continued to facilitate -- let's not forget that "the first $17.4 billion for the auto industry came from the Bush administration" -- was a failure, in that it fell short of some magical standard for success that exists, for the moment, in Romney's imaginings. As Travis Waldron notes:
Chrysler posted its first profit more than a decade in last year and expects those profits to continue growing in 2012. It has added 9,400 jobs since its rescue and plans to add 1,600 more at a plant in Illinois this year, and the success of Chrysler and General Motors has helped American automakers control more than half of the industry’s market share. The industry has hired enough workers to make up for all those laid off during the recession, and American and foreign automakers plan to add 167,000 jobs at American plants this year.
Romney isn’t just ignoring facts — he’s also ignoring a Republican who is close to the situation. Michigan Gov. Rick Snyder (R) has warned candidates against criticizing the bailout and touted its success. “I would have had some differences on how they did it, but I’m not going to second-guess it,” Snyder told the New York Times. “The more important thing is the results. And the auto industry is doing very well today.”
It's also worth pointing out that Romney was for the Obama administration's actions before he was against them. In March of 2009 -- many months after his "Let Detroit Go Bankrupt" op-ed -- he told CNN: "I think a lot of people expected the president just to cave and to write a big check and hope for the better. I'm glad that he's expressing some backbone on this and saying to those guys, 'you have to get your house in order or you guys are gone, you'll have to go to bankruptcy.'"
And that might have been where Romney left things, had he not immediately caught flak from conservative opinion-havers.
Here's what Romney now argues should have happened:
My view at the time — and I set it out plainly in an op-ed in the New York Times — was that "the American auto industry is vital to our national interest as an employer and as a hub for manufacturing." Instead of a bailout, I favored "managed bankruptcy" as the way forward.
Managed bankruptcy may sound like a death knell. But in fact, it is a way for a troubled company to restructure itself rapidly, entering and leaving the courtroom sometimes in weeks or months instead of years, and then returning to profitable operation.
In the case of Chrysler and GM, that was precisely what the companies needed. Both were saddled with an accumulation of labor, pension, and real estate costs that made them unsustainable. Health and retirement benefits alone amounted to an extra $2,000 baked into the price of every car they produced.
Shorn of those excess costs, and shorn of the bungling management that had driven them into a deep rut, they could re-emerge as vibrant and competitive companies. Ultimately, that is what happened. The course I recommended was eventually followed. GM entered managed bankruptcy in June 2009 and exited it a month later in July.
But if the "course" he "recommended" was "eventually followed," where's the problem? In reality, the problem is Romney's. He agrees, today, that managed bankruptcy was a necessary step to take. But it's important to remember that managed bankruptcies require funding, and in the case of the auto industry, there was only one funding source imaginable -- U.S. taxpayers. No one in the private sector wanted to step up and fund this bankruptcy. (Romney suggests that it's inconceivable that "visionaries like William Durant, Walter Chrysler, and the Dodge Brothers" would have gone anyplace other than "private individuals" for help, but Forbes contributor Micheline Maynard reminds us that this did not pan out for Durant.)
As Jonathan Cohn pointed out back in June of 2011, "If Romney wants to disown that part of the package, then he has to disown the whole thing."
The conservative base, of course, has no problem disowning "the whole thing" -- it's the government and taxpayer intervention to which they object. But without the taxpayers, the only option left for Chrysler and GM would be the sort of bankruptcy that ends in liquidation and mass unemployment. If we take Romney at his word that he has a sentimental attachment to "Detroit," then that's not an outcome he could have supported. Hence, his praise for Obama -- for a few hot minutes, before he realized it was an election year liability.
So Romney had to be very specific in his piece for the Detroit News about why he's up in arms about the managed bankruptcy he urged and the overall outcome he applauded. It all boils down to a class argument. He's angry that "secured creditors" had to take a haircut, while the workers under union contract did not lose their pensions or healthcare benefits. Non-union workers did lose in the deal, which to my mind is a good argument for unionization. If Romney had his way, no one's pensions or insurance would have survived. (Romney glosses over this, because the voguish thing to do these days is to get one group of have-nots riled up and angry at another group of the same -- see also: Wisconsin.)
As Wheeler points out, though, the idea underpinning Romney's op-ed amounts to a "stick up for the one percent" argument:
He’s complaining, of course, that VEBA (the trust fund run by professionals that allowed the auto companies to spin off contractual obligations–retiree healthcare–to the unions) got a stake in Chrysler while Chrysler’s secured creditors took a haircut.
So, in part, he’s basically complaining that the bailout preserved the healthcare a bunch of 55+ year old blue collar workers were promised. He’s pissed they got to keep their healthcare.
He’s also complaining that banks took a haircut, as would happen in any managed bankruptcy.
But it’s more than that. He’s complaining that a bunch of banks that themselves had been bailed out had to take a haircut. He’s complaining, for example, that JP Morgan Chase, Chrysler’s largest creditor at the time and the recipient, itself, of $68.6B in bailout loans, had to take a haircut on $2B in loans to Chrysler.
Romney now demands that "the Obama administration needs to act now to divest itself of its ownership position in GM." But elsewhere in the piece, he argues that the "shares need to be sold in a responsible fashion and the proceeds turned over to the nation's taxpayers." These two demands are incongruous. Per Justin Hyde, at Motoramic:
If the Obama administration sold its 500 million shares in GM today, it would lose at least $14 billion. GM shares have struggled even as the company reported strong profits, in part over concerns about an underfunded pension plan. If GM shores up its pension costs, its shares could rise — although they would need to nearly double before the government broke even.
There's ample factual reasons to criticize the bankruptcies — from the treatment of Delphi's retirees and GM's unsecured bondholders to the advantages GM, Chrysler and Chrysler's new parent Fiat gained over Ford. But doing so requires acknowledging that Obama's decisions, including his call to save Chrysler when some advisors were ready to let it go, were mostly right: GM and Chrysler came out stronger and leaner, keeping jobs in the country that would have disappeared if they'd gone out of existence.
And Romney is the candidate who understands the economy and finance and how jobs are created? Compared to that argument, his "son of Detroit" label actually seems like less of a stretch.
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