The president tells us that without his intervention things in Detroit would be worse. I believe that without his intervention things there would be better. -- Mitt RomneyRomney's assertion that the government shouldn't have bailed out GM and Chrysler has received a lot of press due to the Michigan primary this week. It deserves some attention, not because this is a policy that Romney would follow as president, but in the catalog of "Dumb things that pandering candidates say."
I won't refute this at length because it doesn't deserve it. Romney suggests that the governments didn't need to provide bailout money, that other (unnamed) investors would have stepped, but that the Democrats made a sweetheart deal with the UAW (auto workers union), which is a big union contributor for the Democrats.
This story contains plausible elements. Maybe there were potential investors. Maybe the Democrats were happy to cut a favorable deal for the union--that part sounds very plausible.
But the truth is quite different, and Romney conveniently manages to ignore it in favor of Republican talking points that have practically become dogma. The most important point is that there were no other investors. If the government hadn't stepped in, GM and Chrysler would have been liquidated, along with possibly a million jobs.
History of Republican Talking Points about the Bailout
The GOP's first position on the bailout was claiming that Obama was going to nationalize GM and Chrysler and put government bureaucrats in charge. When business leaders were hired, the story morphed: Obama was going to trample on bondholders' rights. Bondholders conceivably had the right to liquidate the companies and try to get as much money as possible by selling off the parts.
This story contained some truth. If jobs were saved, Obama would happily see the bondholders take less. The story also hides something that the GOP hoped for--a greatly weakened UAW. One problem with this viewpoint is that it's clearly unfriendly to regular workers, so the GOP has softened it. It's not just the bondholders that were abused, but also regular people who had settlements from GM or Chrysler for injuries caused by autos.
The latest conservative story jettisons the concerns of bondholders. The government should have butted out, let the bankruptcy process work, and the industry would have survived in good shape. Instead, Obama thrust the government into the bankruptcy to deliver the goods to his union cronies.
It's true that the union ended up with the better deal in the bankruptcy. The UAW now has a major stake in Chrysler and responsibility for retiree health benefits. Perhaps it now has sufficient incentive to be careful with money, since it isn't all "other people's money."
Which Side Are You On?
It's hard for me to be as angry with UAW as their severest critics are. The press is incredibly split on the auto bailout. You won't hear this kind of rhetoric in the MSM:
[The] legal rep of Chrsyler investor Perella Weinberg, reminds that then-Auto Czar Rattner warned that unless they accepted Obama's UAW Bailout they would come "under threat that the full force of the White House press corps would destroy its reputation if it continued to fight." -- Henry Payne, Detroit NewsThis split makes it hard for me to feel sure I can decipher the truth, but here goes my best guess:
- GM and Chrysler would have been liquidated without the government bailouts that permitted them to keep operating. This would have resulted in even larger job losses at a time when the economy was hemorraghing jobs.
- Bondholders, some of whom speculated on distressed bonds, were going to take a big hit one way or another. It wouldn't have been for the greater good for them to have a richer settlement at the price of so many jobs.
- The UAW got a better deal due to the friendly Democratic administration than it would have otherwise.
- The conservative press complains that the government edged out private capital, but doesn't say who. They also say it was a give-away to the UAW, but they don't point to which provisions of the deal were egregious. I smell some weakness to their argument.
Sources:
- Left-leaning and administration: NY Times Feb. 19, 2012, Feb. 23, 2012.
- Right leaning: Romney Op-Ed, Wall Street Journal Feb. 25, 2012, Fox News, Auto News.
- Industry bloggers and newspapers: Yahoo! Autos, Michigan Auto News, Cleveland site, Detroit News Oct. 22, 2009, Jan. 12, 2010, Dec. 7, 2011.
Update 6/8/15. The GOP still can't admit they were wrong. Here's a good summary--shorter than mine, but from a professional source.
Update 3/12/16. I'm still arguing with people on the net about this. One, a real weirdo who has some interesting sources, pointed me to this article by a corporate restructuring consultant. My argument with the commenter was how much credit Romney deserves for the preservation of the car companies through bankruptcy. I don't give him a lot of credit because:
Update 3/12/16. I'm still arguing with people on the net about this. One, a real weirdo who has some interesting sources, pointed me to this article by a corporate restructuring consultant. My argument with the commenter was how much credit Romney deserves for the preservation of the car companies through bankruptcy. I don't give him a lot of credit because:
- Restructuring was necessary, and everyone knew it.
- Bankruptcy was one way to restructure. Many resisted, but it's not as though Romney was the only or main proponent.
- Romney was vague on how to keep the car companies going during the restructuring, and that funding (the bailout) was absolutely necessary too.