Romney’s misguided attack on the automotive bailout
That might well be the upshot of Romney’s op-ed in the Detroit News this week deriding the 2009 automotive bailout as “crony capitalism” and calling it a sop to the United Auto Workers union for supporting President Barack Obama’s campaign. Romney wins points here for courage and consistency (he has taken this position before), but not for political smarts or judgment.
Romney has found himself in the shaky position of defending Romneycare, the government-financed healthcare plan in Massachusetts, while criticizing the government-financed rescue of GM and Chrysler. It’s hard to see a consistent political philosophy in this, which is why conservatives don’t trust Romney. It’s also hard to understand why, on the eve of Michigan’s critical primary, Romney is criticizing the only Obama domestic-policy initiative that actually has worked.
Not surprisingly, the $81 billion bailout was, and remains, wildly popular in Michigan. But on a more fundamental level, the government bailout was the only way to save General Motors and Chrysler, and thus was a critical element in preventing the Great Recession from morphing into Great Depression II.
Recall that in November 2008, the month Obama was elected, the U.S. economy shed 533,000 jobs, the biggest monthly job loss in more than 30 years. That jolted George W. Bush, a Republican, into action. The first $25 billion in government bailout money was approved by the Bush administration before Obama took office.
While Romney asserts that a “managed bankruptcy” funded by private investors could have rescued General Motors, absolutely no private money was on the horizon in 2009 for either GM or Chrysler. Nobody was raising their hand to buy a used car company, and the frightened banks wouldn’t have financed it anyway. The only alternative to a government bailout was the outright liquidation of both companies. Maybe the U.S. economy could have survived that blow, but maybe not. What’s clear is that it would have been foolhardy to find out.
For both political and philosophical reasons, the Obama administration really didn’t want to bail out Detroit. The potential for accusing the administration of paying off the UAW, as Romney has done, was all too obvious. To the president and his aides, the bailout was sort of like changing a diaper — disgusting but necessary.
Moreover, the UAW had to swallow bitter concessions, and almost balked at the deal. Obama’s automotive task force insisted on abolishing restrictive work rules and the infamous Jobs Bank that paid laid-off workers 95 percent of their wages indefinitely for not working. The union also was forced to take shares in Chrysler (in fact, a controlling stake) to finance its retiree healthcare fund. What the UAW really wanted was cash, not stock. The union wasn’t stupid; it wanted to milk Chrysler, not own it.
In fact, what made the automotive bailout work, despite its widespread and understandable unpopularity, was that the pain was spread widely. Factories got closed, brands (Pontiac, Saturn, etc.) got killed, workers lost their jobs, executives got fired, bondholders took haircuts, stockholders got wiped out and dealers lost franchises.
It was messy. It was painful. And it was ugly.
The only thing worse would have been outright liquidation. That might have been catastrophic.
PHOTO: United Auto Workers and other activists protest outside a Coney Island restaurant where Republican presidential candidate Mitt Romney made a stop in Livonia, Michigan June 9, 2011. REUTERS/Rebecca Cook