Mitt Romney's Ye-Olde-Times Plan For Detroit

In a Op-Ed piece in today's New York Times, Mitt Romney boldly invites Americans to view the auto industry through the economic lens of 1954. As a foray into the troubled waters of the biggest industry crisis of our time, Romney's plan epitomizes how Republicans think about the economy: by pretending we live in a Dickensian version of the Eisenhower era.

When transported back in time to that imaginary Republican past, the actual challenges of 2008 vanish (poof! all gone)--challenges like renewable energy, resource stewardship, sustainable building, healthy communities. Also gone are the opportunities those challenges bring. Thus, in Romney's Op-Ed, we climb into the Wayback machine and travel to an imaginary time where the only problems ailing Detroit are labor, overpaid labor, unproductive labor, and labor unions.

The specifics of Romney's proposal can be summed up in a sentence: Instead of Washington providing Detroit a bridge loan of $25 billion to cover short term credit vanished in the comatose credit markets, we should force GM, Ford and Chrysler into bankruptcy proceedings. Bankruptcy, says Romney, is the only way to guarantee that the Big Three make the kind of tough decisions necessary to rebuild a better industry.

And that is where we hop into the time machine and travel back to the 1950s:

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support -- banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around -- and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit's automakers.

I know Romney's 'I love American cars,' line all too well. Like Romney, I was also born in Detroit (at a hospital that just announced a massive round of layoffs). Confessing love for American cars, however, is a way of talking about the auto-industry that dates back to, say, the 1970s. In 2008, most Detroiters understand that companies like Toyota build cars in American plants with American workers and American parts--and they are just as 'American' as cars built by the Big Three with parts and labor in Mexico and Canada.

But that is just the beginning of Romney's step back in time. Next, we move from the 1970s to the 1950s with Romney's nostalgia for dear-old-dad.

Now, most people from Detroit have fond memories of George Romney for one reason or another (unless you lived in the city in 1967 when Romney declared a state of insurrection so he could send tanks downtown to quell the public disturbances). What lies way back in the 1950s, according to Mitt, is a perfect model for saving the industry: the miracle of the American Motors Corporation.

If you are younger than 75, you probably remember AMC for selling the iconic Gremlin--a V-8 'compact' car and 1970s icon that eerily resembled a quadruple amputee frog. George Romney's innovation came earlier in the form of the Rambler.

George Romney did not actually design or invent the Rambler so much as he streamlined its production, pairing down AMC's entire line in the process. These changes, together with savvy marketing, enabled the media nimble CEO to make AMC competitive with the bigger Ford, GM, and Chrysler for much of the late 1950s and early 1960s.

But ultimately, AMC went the way of the Dodo bird because the problems the American car industry faced in subsequent years had less to do with production streamlining than with the general worldview of the industry.

As gas became more expensive and consumers became more concerned about pollution, foreign car companies began to produce smaller and more efficient cars. Moreover, these cars were produced in factories that increasingly gave workers decision-making autonomy relative to management.

Meanwhile, the American industry started to flounder in a series of debilitating peaks and valleys throughout the 1980s and 1990s. In this environment, the autoindustry came up with its biggest innovation to date: to get around emissions standards, trucks can be marketed as 'safer cars.' As a result, we now live in a schizophrenic car industry world where people demand higher fuel efficiency, but at the same time are afraid that small cars are 'unsafe.' And so we get 'innovation' from Big Three executives in the form of oxymoronic product lines, such as 'luxury hybrid SUVs' and 'fuel efficient V8' sedans.

For Mitt Romney, none of those realities matter. All that matters is the notion of 'streamlining' he lifts from the studies of his dad's success in the 1950s and 1960s.

Along these lines, Romney's plan to rescue the industry consists largely of a taking Paul Bunyan's axe to automotive workers. How does this happen? Well, step one is to deny bridging loans to the Big Three so that they are forced to go into bankruptcy. Once in bankruptcy, Romney explains, the automotive industry can finally get down to streamlining production, by which he means the first step of getting rid of 'the burden' of the American automotive worker:

Midway through his piece, Romney actually proposes something that makes sense--that we should fire the current crop of rust-covered auto execs.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota's Avalon. Of course the Avalon feels like a better product -- it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Golly gee, Beaver. Sounds like union busting to me. And yet, this is exactly how Republicans talk about American workers: 'Vote for me, Joe The Assembly Line Worker! And stop being such a burden, wouldya?'

Romney goes on to explain that the current crop of management in the Big Three has an insane view of executive compensation, the one good point Romney makes in his Edsel of an Op-Ed.

In the end, words like 'energy,' 'environment,' and 'sustainability' do not even show their faces in Romney's plan. All of those core issues that must define the future of the industry--if it is to have a future--are front and center in the minds of American voters, but they are decades away from a Republican party that has ridiculed them as liberal hoaxes. Thus, Romney's plan is little more than a rewording of the infamous, bureaucratic axiom from Dicken's David Copperfield:

Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.

Scrooge Romney aside, what Republicans fail to see is plain to anyone with a moral conscience and increasingly apparent even to some who lack one: a bankruptcy for any of the Big Three would bring eruptions of unemployment so destructive it would make Krakatoa seem like a baby's burp by comparison. Sure, millions of auto workers would lose their jobs from Michigan to California (that's right...it would not just be pain for the Mitten State, but everywhere). But that would just be the beginning. Every industry in America would also be destroyed by the eruption of unemployment that would result from a Big Three bankruptcy.

Just yesterday, for example, hospitals in Michigan began announcing layoffs--hospitals! In 2008, the people whose working lives sustain the industry also sustain hundreds of manufacturing and service industries in their communities, chief among them the healthcare industry. If the Big Three goes, hospitals will not be far behind.

If GM or Ford are forced into bankruptcy by the 1950s thinking of the Republican Party, we can likely expect the Christmas headlines to describe the deaths of entire communities suddenly unable to sustain any services in the legal economy.

All of Mitt Romney's nostalgia cannot change the fact that the solution for Detroit is not bankruptcy, but a three stage process initiated by a Presidential Forum.

When the American people agreed to invest in the recovery of the financial markets through the TARP program, we did so specifically so that the crisis in the commercial paper market would not result in a domino of industry failures leading to economic depression. GM--and soon Ford--are the first test cases of that trust the American people gave the Democratic Congress and the Bush Administration.

Now is the time to compel change in the auto industry, not rush into bankruptcy and hasten a wave of layoffs.

Now is the time to use the bully pulpit of the President to shed deadbeat auto executives and set in motion a three stage process towards rebuilding the automotive industry according to agreed upon principles of sustainability.

Now is the time to reject Republican proposals to pretend we live in a fictional version of the 1950s and keep our minds focused on the real challenges we face--in the real world of today.

(cross posted from Frameshop)

Read More:

Should the Government Bail Out the Big U.S. Three Automakers? HuffPost Bloggers Weigh In

Follow Jeffrey Feldman on Twitter: www.twitter.com/JeffreyFeldman

Comments

[Skepticat]

Henry Ford II once invited UAW president Walter Reuther over to view one of the first automated robot arms. After bragging about it's high efficiency and how easy it would be to replace the workforce Reuther asked: How many of those robots will be buying cars?
Blaming the workforce might score points at the enterprise institute - but unemployed folk don't buy cars or much else either.

[colddog]

The big picture is that the Republicans are following an agenda to get us back to "Classic Capitalizm", ie before FDR. That means: Tycoons, no middle class, few taxes, and lots of unemployeed people (in classical capitalizm, unemployment is a GOOD thing for profits, the more the better).

Watch for an all out assault on the minimum wage by repugnicans next.

[Doofus]

This is not the first time that Detroit has made a lot of cars that people
no longer want to buy. The overseas car companies (who actually make
many cars right here) have been doing awfully well for many years now,
obviously, and the real problem (at least relative to marketing) is that
Detroit's market share even if they were making 'popular' products
would still not be very high.

They chose to make high-profit, low-volume gas-guzzlers which NOW nobody wants.

But on top of that, they are stuck with high labor costs, pension costs,
healthcare costs, etc. It would have been useful for Romney to have addressed
some of these issues. However, I think he basically just wants to stick it to the
unions, because, don't you know, 'Dad' Romney was management, not labor.

Well, 'basically', Romney remains just a first-class political opportunist
who serves no useful purpose except to rile up the Repo base and stay
in the running for the next available election, whenever & wherever.

[NicoloM]

What happens to workers in a bankruptcy? It has been disasterous for airline workers, and our unions became virtually useless.
So why do the romny rich want automaker bankruptcy?

[proudem]

Thank you Mr. Feldman for responding to Mitt's op-ed piece (NYT). Your explanation is the best that I have read so far. I assure you that I will be referring to it in my letters to my Congressmen and Senators, as I want every one of them to read this piece (of course giving proper credit). I am sending them the link.

[BenMurphyNYC]

I just called my congressman to ask him to support the rescue package. I've been impressed by GM and Fords changes over the last several years, I think they were on the right path but had the rug pulled out from underneath them when Wall Street over leveraged and shutdown the economy.

[Doofus]

The sub-text of Romney's op-ed is that we need
either fewer unions, if he's right, or more, if he's
wrong. Workers' councils, anyone?

Alternatively, a partial solution could be just to
implement universal healthcare & hope for the best.

[MajorKong]

So who's going to buy all those American-made cars after Mitt "streamlines" the Big 3?

The laid off workers won't be able to afford them and the remaining workers probably won't either after they have their pay cut.

Henry Ford had this figured out a hundred years ago. "If I pay a man enough to buy my car, he'll buy my car".

[proudem]

Excellent point. I also have been making that argument for years. What is wrong with a country that doesn't want it's largest group of people to make a living wage?

[Doofus]

Kind of gives new meaning to the phrase
'Where we're going we don't need roads!'

[bannorhill]

For years Detroit has run inefficiently and has not made moves to control costs. That is why they have a $2,000 per car disadvantage. Now Detroit wants us to bail them out for their mistakes. Why? To protect the unions? They are the ones who have enjowed the benefits of the $2,000 disadvantage.

I have a better idea. Give $2,000 to everyone who paid that extra for Detriots inefficiencies. We paid once for their mistakes and now Detriot wants us to pay it again. Let Detroit figure it out with the extra $2,000 a car they got from buyers!!!!!

[proudem]

Many attribute the $2000 cost to Union pay and benefits. I have a problem with that figure as it doesn't tell just how much of the cost is to upper executive pay and benefits. Please keep in mind, as one examble, that the CEO of Ford received 28 MILLION in pay last year and 60 MILLION in bonus. How much of that cost contributes to the price of cars. Another example is the the Ford Fusion made in Mexico. Ford pays about $12 US with no insurance to the Mexican Nationals...have you seen the price drop? The price of automobiles do not drop because of decreasing labor costs. It just means more profit for shareholders.

[bannorhill]

I don't care if labor or management costs are out of line. That is Detroits problem to solve. don't make me pay for their mistakes.

[BuckeyeGal]

Labor costs are passed along to the consumer in EVERY product. Stop shilling for the union-busting corporate fat cats.
Your job will be affected next, if it already hasn't.

[NicoloM]

Better yet, set up universal health care in a crisis mode so US automakers and other businesses can compete with modern countries where healthcare is not such a great cost (much of the $2000 is healthcare).
The fat cats have been crying "crisis" and taking our money. Lets shout Crisis and meet the public's needs in a way they can't divert a dime from. Take that burden from the automakers and then address the Bushness of the car industry executives.

[cobobs]

Chop shop financiers like Mitt are insensitive to the pain of others.

[gladys46]

Sure we may all be disgusted with the greedy CEOs just as we are with our nation's Mr. MBA, GW Bu$h, Inc... I find them all criminal ... but, does that mean the people must suffer!? We were finally able to vote the scallywags out but, not before all the harm ... what can the hard working tax payers of the auto industry do about their leaders !?

[aphid]

So much for Michigan's love for their "native son"!

I'm starting to agree with you, Jeffrey. I'm disgusted by the thought of another bailout, but propelling them into liquidation is likely to set off a grim chain reaction of unemployment, further foreclosures, on and on.

Give them less than they're asking for and attach strict provisions so that they at least have a chance to restructure and someday be competitive in the manufacturing of vehicles that are built for the future, not the Pleasantville past.

[ObjectiveRealist]

I got the distinct impression that they just have their hands out because it worked for the banks. If they really are on the verge of collapse, we should still let the car companies sweat it out until February, and also write up a respectable business proposal. It should be more than three pages.

[proudem]

I kinda think that is what is going to happen. Not a bad thing...the industry can hold out until Feb. Remember the banking industry said that they needed the bail out immediately? They had to wait for weeks with no difference in results.

[Cinderpath]

If you as a taxpayer want to be on the hook for $200 Billion, and 3 million people collecting unemployment, not paying taxes, and having the US Taxpayers pick pensions up for about another 3 million people that the government will pay for, then by all means save the $25 Billion to bail them out, and pay $200 Billion more in higher taxes.

There is a reason Obama supports this, and Republicans are against it: It'll push our economy into a depression, in which Republicans will have an opportunity to say Obama can't lead us. There are WAY more jobs connected to this (from engineering, to health care and advertising beyond manufacturing that will go down the tubes) than banking.

[CSE]

What you may have failed to consider is that the scenario whereby taxpayers have to pick up for a collapse of the big 3 may still occur after we throw an initial $25 billion at the companies. That amounts, in your calculations, to $25 billion now and then $200 billion later less the salvage value of Big 3 assets that are not taken by other creditors.

Aside from the litany of creative language couching absurd analogy, Karakatoa being the largest absurdity, the author never actually explains how the industry "sustains" industries beyond their own diminished sector - nor reveals that the US economy was roughly 80% service sector where manufacturing was minuscule. Within the dominant service sector, a good portion were not creating wealth, just pushing it around on paper, in the financial and insurance companies.

The author also fails to mention that the other, more recent manufacturers do not carry the burden of pensions and health care for retirees in comparison - due to the very lack of longevity of being in business. Newer firms beat out the tired, old and fat corporations.

Also not discussed was the possibility that the seed money being provided the financial sector might need to be used - through those institutions receiving those bail out funds - to provide necessary credit to the Big 3. Be prepared for a private - non-partisan - assessment that reveals such loans will not be financially advisable.

[RedKnuckles]

I'll also bet the Mittster is nostalgic for the '76 AMC Pacer ( the Mirthmobile) used in Wayne's World, which incidentally was auctioned by a car museum a couple of years ago and failed to sell... Party On...Excel­lent!...no­t....

[ObjectiveRealist]

Pop quiz for Mitt:

Q. What crucial assumption of Chapter 11 Bankruptcy is not likely to work for the Big Three right now.

A. Credit. A company in Chapter 11 Bankruptcy *normally* runs on credit during its restructuring period. The whole problem is lack of credit.

Romney and others suggesting that the Big Three can file Chapter 11 bankruptcy and continue operating have not done their homework, or are lying. It isn't true. They would not get the credit they would need for Chapter 11 to work as intended, and they would proceed to Chapter 7, Liquidation. Closing up shop. 100% layoffs. Looks like a pretty elitist suggestion.

[jinxed]

Ever notice how its ALWAYS the workers fault with Republicans and NEVER incompetence and poor decisions by its executives? And of course, these same incompetent executives really earn their obscenely high pay, just ask them. They worked hard for each and every million they take. Their pay just couldn't possibly be a part of the problem.