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Mitt Romney's Stance On Auto Bailout Doesn't Reflect Local Feelings On The Economy

Detroit Romney

First Posted: 02/15/2012 3:25 pm Updated: 02/15/2012 10:58 pm

DETROIT -- Three and a half years ago, as the auto companies at the heart of this battered city faced bankruptcy, Texas Bar and Grill on Kercheval Street on Detroit's east side was deserted. People just stopped coming, says Rose Tucker, a bartender at Texas Bar for 15 years.

And when a few people did trickle in, many didn't have money to drink. They'd play pool, or start up the jukebox, and smoke.

Today, from the outside, the bar looks run down, and it's not entirely clear whether it's open for business. But the dark, wood-paneled place is again attracting auto workers from the nearby plant, day laborers hoping to find work and anyone else down on their luck. During lunchtime at the bar last week, about a dozen people were nursing drinks, chatting with friends, eating or watching news broadcasts of a local murder investigation.

The anxious, cautious optimism in the smoky air at the Texas Bar now reflects a shared feeling among the inhabitants of Detroit and its suburbs, voiced by Tucker, the bartender: "Things are getting better."

That outsiders and presidential candidates still question the necessity of the auto bailout -- a question with not just local, but also regional and national implications -- somewhat baffles those here who feel as if they are just beginning to emerge from the added weight of the nation's financial crisis more than three years ago, the ones who are seeing the bailout's benefits.

On Tuesday, presidential candidate and former Michigan resident Mitt Romney wrote in an op-ed in the Detroit News, "The president tells us that without his intervention things in Detroit would be worse."

He called the auto industry bailout, "crony capitalism on a grand scale," writing, "I believe that without his intervention things there would be better."

But interviews with those who lived through the near-collapse of the auto industry here in 2008 paint a more nuanced picture than the one Romney presents. In Michigan, unemployment is dropping, and the auto industry on which it depends is adding jobs and making money.

Anyone still debating whether or not the bailout was worth it is "crazy," said Kenny Akinwale, owner of The Detroit Seafood Market, a restaurant downtown. Business at the restaurant was really slow until the end of 2010, when lunch time traffic started picking up. By the end of 2011, Akinwale had doubled sales compared with 2010.

"You can clearly see all of the company executives who come in here," he said, referring to executives from General Motors, Quicken Loans, Blue Cross Blue Shield and Detroit's energy provider DTE who are back spending money. "You can see a shift in the city."

The federal government invested about $80 billion in Detroit's automakers and suppliers following the economic downturn in 2008. About $60 million went to GM and Chrysler.

Three years later, in his state of the union address in January, President Barack Obama touted a revived auto industry as an accomplishment of his administration. Earlier this month, Chrysler, the smallest of the Detroit automakers, posted its first profit since 1997, and it has added some 9,400 jobs since the bailout. On Thursday, GM plans to release earnings and is expected to post its second annual profit in a row, following five years of successive losses.

"We can't go back to 2009 and say, 'OK, as an experiment, let's see what happens if we let the automakers crash and burn,'" said Charles Ballard, a professor of economics at Michigan State University.

Though Michigan hit a high of 14.1 percent unemployment in 2009 and has been regularly among the worst states for job losses, unemployment is improving. Unemployment had dropped to 9.3 percent in December, though the rate is still higher than the national average.

That may be in part because a lot of people have left the state: Census data shows Michigan is the only state in the union which lost people between 2000 and 2010. But state has gained 100,000 jobs in the past two years, said Ballard. That doesn't come close to offsetting the 800,000 jobs lost between 2000 and 2009, but it's better than a continuing downward spiral, he said.

There could have been nearly 1 million job losses immediately following the automaker collapse, mostly in Michigan, according to Ballard. Instead of unemployment hovering around 14 percent, he said, it could have been closer to 20 percent.

In his recent op-ed, Romney -- who also opposed the bailout in an op-ed in The New York Times in 2008 -- argued that automakers should have been left to go bankrupt on their own, letting the courts force the companies to restructure. As the son of both a previous Michigan governor and former head of the American Motors Corporation, Romney says he speaks from experience. He was born in Detroit, after all.

The bailout gave the unions too much power in the new companies, Romney argued, and gives the government a large stake in General Motors that it should divest itself of immediately.

Yet in the fall of 2008 and early 2009, there weren't any banks willing to help GM or Chrysler through bankruptcy. If a company goes into bankruptcy without a bank willing to fund operations for a while, companies typically go out of business and are sold piece by piece.

Without someone stepping in, it seemed GM and Chrysler would sink. And Ford, which didn't take bailout money, urged the government to come forward. If the two other automotive giants in town went under, they could drag Ford under, too, CEO Alan Mulally told Congress.

At the time a senior official in the President's automotive task force said on background during a White House conference call that the government never expected to recoup the money it invested in the automakers. It was simply trying to avoid a disaster.

And while a disaster on a national scale has been avoided, residents in Michigan are still recovering from the shock of the downturn.

"For a person like me, I depend on wealthy people," said Dave Taormina, an independent contractor who frequents the Texas Bar and works primarily in the nearby wealthy Grosse Pointe suburbs. He had some dry periods where he didn't work at all. Now he's got some leads. He priced out a job for one GM executive who wants to build a glass shelf around their kitchen to show off a collection of hot sauce bottles. But the exec hasn't committed yet.

"[People] don't want to let go of their money," Taormina said. "For guys like us, it's still very difficult."

Gene Lovell, CEO of First State Bank in St. Clair Shores, a town just outside of Detroit, said people feel better about the economy, but it's still not where it was before the crash.

"People are still skittish, and are making sure that everything has stabilized before they put themselves out too forward," Lovell said.

The bailout has not resolved the financial struggles of Detroit itself, and the auto industry's recent success may never trickle down to the city government. Detroit's government is in crisis: The state has threatened to install an emergency manager to run the city, has laid off thousands of workers, and could ultimately face bankruptcy.

But the broader upswing in the regional economy is starting to show up in some surprising places, like the state capital, Lansing. When the state closed out its books for 2011, it realized tax revenue was up a bit. The state was surprised to find it has a $457 million surplus on the books. And, thanks to deep cost cutting moves taken in recent years by Gov. Rick Snyder (R) -- some in the areas of education and local government -- the state has no major deficits pending for one of the first times in a decade. The state may actually be able to use that money to do something, like hire back teachers or hire police officers.

As HuffPost's Jason Linkins reports, Snyder has cautioned candidates against criticizing the bailout.

"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 things is the results. And the auto industry is doing very well today."

Despite the confidence of politicians like Snyder, given that so much of the local economy is dependent on the auto industry, people are waiting to see if the automakers are truly doing better before making large investments.

Lovell's chain of banks are primarily in Macomb County, just north of Detroit. Everyone there has ties to the industry, he said. When the automakers are losing money and laying off people, it hurts everyone from restaurateurs, retailers, cleaning services, office good suppliers, and everyone in between.

Business leaders are "hopeful that the auto companies have in fact recovered, but it's still a big question mark: are they going to be able to sustain that recovery," Lovell said.

Ron Hoffman, owner of advertising firm RJ Hoffman and Associates, is seeing that first hand. He doesn't do advertising for automakers; his clients are primarily dentists and restaurants. Business has been flat or down over the course of the past three years, but in the fourth quarter of 2011, he signed two new customers. They were his first new customers in three years.

"It's just a trickle," he said. Some of the restaurants he works for are doing much better, doubling business over the course of the past 12 months, but they're still hesitant to start advertising more. "It'll get better. It's just going to take time."

Not everyone in Michigan is comfortable with the bailout. According to Public Policy Polling, over 60 percent of Michigan's Republicans oppose the auto bailout -- but only 36 percent of the state's overall population opposes the measure. Lovell said he's worried the auto bailout will teach business owners that if times get tough, the government will step in. He finds himself talking with customers about self-reliance a lot, he said.

"We need to be prepared as business people and as individuals to pick ourselves up by our boostraps and get things going," Lovell said. A lot of people in Michigan, he said, have a lot of respect for Ford Motor Co., which didn't take any bailout money. "The people of Ford feel some pride, and I think that's very warranted."

"They've shown we can do it. That's a great message for Michigan."

CORRECTION: An earlier version of this story stated that Mitt Romney's Detroit News op-ed was published Thursday. It was published Tuesday.
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