When I hear Mitt Romney revising history to criticize President Obama for taking action to ensure the survival of the American auto industry, I find it incredibly frustrating and disingenuous. Mitt Romney was wrong then and he's wrong now -- I know because I was there when President Obama stood up for our auto workers, our auto manufacturers and our families here in Southeast Michigan. Today, because of President Obama's commitment to Michigan, Detroit's auto industry is leading America's economic recovery, but this never would have happened if Mitt Romney had his way. Here's the truth about what actually happened.
In November 2008, at the height of the economic crisis that paralyzed our financial system, Mitt Romney published an opinion piece in the New York Times titled, "Let Detroit Go Bankrupt." In it he stated that if the government intervened to save the auto industry you could "kiss the American automotive industry goodbye," and argued that GM and Chrysler should go through the traditional bankruptcy process in order to restructure their debts. This made almost no sense in 2008, and given the undeniable turnaround in the American auto industry over the last three years it makes even less sense now. Yet, earlier today, Romney published another piece in the Detroit News arguing that he was right all along. While it is almost shocking that Romney would still cling to the notion that somehow he was right and Presidents Bush and Obama were wrong, by now I think most Americans understand that Mitt Romney is someone who will say anything to win an election.
In a traditional bankruptcy, a company has two options: it can either find an investor willing to loan it the money needed to restructure its debts and reorganize its business so that it can be profitable, or it can liquidate its assets and pay off its creditors. In late 2008 and early 2009 there were quite simply no private sector investors that would be willing to provide billions of dollars of what is known as "debtor in possession" financing to GM and Chrysler. In fact, in early 2009 I met with Bob Nardelli, who was at the time the Chairman and CEO of Chrysler, and he told me that if the government did not act as the "lender of last resort" the company was three weeks away from liquidation. General Motors, which was losing $1 billion per month as car sales plummeted at the height of the recession, ended up needing a $50 billion investment in order to restructure -- an inconceivable amount of money for anyone other than the government at that time. Liquidation of even one of the Big 3 automakers would have begun a chain reaction of job losses that would have put millions out of work.
Even if private capital had been available, a traditional bankruptcy restructuring can take years. Delphi, whose total assets were only about a quarter of GM's at the time they entered bankruptcy, did not emerge from the process until four years later. The auto industry is driven by consumer confidence -- someone buying a new car or truck has to trust that he or she will be able to buy parts for it, have it serviced at the dealership, and have their warranty honored. A traditional, years-long bankruptcy fight would have had a catastrophic impact on consumer confidence and perception. Through the government-managed process, however, GM and Chrysler were both able to emerge from bankruptcy in a month, which allowed them to quickly take advantage of the improving economy and increased auto sales.
The Delphi example also highlights another problem with a traditional bankruptcy. During the bankruptcy process Delphi went from being the nation's largest auto supplier with 44 U.S. factories that employed 50,000 workers, to a company with just four U.S. factories and a domestic workforce of only 14,000. One of the goals of the government intervention in the auto industry was to save as many American jobs as possible. In Mitt Romney's experience as a leveraged buyout expert, he learned to put the claims of creditors and investors ahead of workers, but what President Obama understood is that the value of the American auto industry is more than just its return on investment for shareholders -- it's also the millions of good-paying, middle-class jobs that the industry supports. The path the president chose was to require shared sacrifice from all parties in an effort to give creditors a fair return, but also preserve jobs.
Romney also claims that the UAW got a sweetheart deal at the expense of these creditors. Nothing could be further from the truth. I was closely involved with negotiations between Chrysler, the government, and the group of banks and other investors that had loaned Chrysler money. Chrysler had $6.9 billion in outstanding debt, which was trading amongst investors for as little as 15 cents on the dollar. Many of the creditors who complained that their rights were being violated had purchased Chrysler's debt at this low cost -- they weren't focused on Chrysler's long-term survival, the thousands of manufacturing jobs hanging in the balance, or even recovering their initial investment. Instead they were interested in turning a quick, windfall profit. Ultimately, these investors received more than double the amount of money they would have received had Chrysler been forced into liquidation. Meanwhile, tens of thousands of UAW workers lost their jobs or were forced to take early buyouts, so that they could be replaced with new hires under a lower-tiered wage system that pays less than what many non-union autoworkers are paid.
In 2008 Mitt Romney said that government investment in the auto industry would lead to its demise, but by any measure the American auto industry is stronger today than it has been in a generation.
Here's the facts:
- Chrysler increased sales in 2011 by 26.1% and GM's sales grew 13.2%.
Not only are Chrysler and GM selling more cars, they are operating more profitably as well. Chrysler earned $183 million in 2011, and is projecting it will earn over $1 billion in 2012. GM reported earnings of $8 billion in 2011, and it is widely believed they will be able to earn as much as $10 billion per year on $150 billion in annual sales in the coming years. It's hard to imagine how Romney believes he could have improved on this stunning success.
By getting involved, the Obama administration also made sure that we didn't sacrifice jobs for profits. By working together GM management and labor were able to come up with a unique agreement that allowed General Motors to become the first automaker -- foreign or domestic -- to build a subcompact car in the United States. It used to be conventional wisdom that small cars could not be built profitably in the United States, but today the Chevy Sonic is rolling off the assembly lines in Orion, Michigan, and is now one of GM's strongest-selling models. Fiat is increasing its ownership stake in Chrysler by meeting benchmarks related to investment in the US and its workers, for example by transferring valuable technology that will help Chrysler build a fuel-efficient small car in the United States.
Today the future is bright for the American auto industry, despite Mitt Romney's empty rhetoric.
Mitt Romney touts his private sector experience, but he is willfully ignorant of the facts when it comes to the auto rescue. Rather than admit he was wrong in 2008 when he argued that our country should let Detroit go bankrupt, he is doubling down on his mistake and trying to convince people in Michigan to disbelieve what they are seeing with their own eyes. Mitt Romney may have grown up drinking Vernors, but clearly he forgot where he came from.