Romney’s misguided attack on the automotive bailout

February 16, 2012

Michigan’s upcoming GOP presidential primary lends itself to automotive analogies. So here’s one. If Mitt Romney were a car, he’d be the Mitt-subishi Eclipse.

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


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Oh, sure. The auto bailout worked… it worked by causing the US to lose billions and GM STILL went into bankruptcy, which is what Romney said needed to happen in the first place.

Now we have the union running the place (see Animal Farm), the people with actual equity, money and outstanding bills got shafted, while all the fat cat bosses with ties to Obama got rich and the GM recovery was pushed out by a months, if not years. And the tax payer still lost billions on the deal.

Posted by Machtyn | Report as abusive

Mitt is to predictable as what mom is to apple pie. He has consistently preferred messages that will win votes. If GOP voters of one state want healthcare reform killed, he’s for it. If another state clamors for continuation of healthcare reforms, he’s for that.

Posted by SanPa | Report as abusive

What about using bankruptcy court? There is plenty of legal precedent to have dealt with auto co. bankruptcy cases in an efficient manner. Why not let the markets dictate the outcome?

Now, the government is in the car industry and on a fundamental level, that is inherently wrong.

Posted by jaham | Report as abusive

@Machtyn, @jaham: Excellent points.

> “Romney has found himself in the shaky position of defending Romneycare, the government-financed healthcare plan in Massachusetts, while criticizing the government-finance rescue of GM and Chrysler.”

The difference is obvious for anyone who cares to think about it:
* Healthcare is about sustainability, compassion and investment in human beings. People can’t work effectively if they’re sick, can they? The pay-backs from basic universal healthcare provision are obvious: there’s no better investment than a person.
* ON the other hand: Bailing out the auto industry = the government getting taxpayers involved in a very risky business investment with money they didn’t have (exactly what they’re not supposed to do). The only people guaranteed any returns from that were the company directors who were let off the hook. No wonder they were yelling for government support, and threatening dire consequences if they didn’t get it! Sorry but Obama blinked first.

Romney is a veteran businessman, and his father was heavily involved in the industry you are talking about. Romney’s father achieved a lot in the auto industry. Romney was raised on his father’s experience – so perhaps it’s no wonder that Romney was successful in business, or that Romney knows what to do in situations like this. It’s his bread and butter!

Sorry Mr. Ingrassia but you’re onto a loser here!

Posted by matthewslyman | Report as abusive

Another difference between “Romneycare” and the auto industry bailout… The price-tag…

Posted by matthewslyman | Report as abusive

Michigan unemployment is at 9.3 % as of January. Real unemployment is much higher there as it is elsewhere. Not what you would call hugely popular when so many are out of work. Black full-time unemployment in Michigan is over 50%, all teenage unemployment even higher.

Best estimate is that GM still owes the taxpayers $37 Billion and will never pay it back. Obama “bought” GM, fired the CEO, trashed the stockholders, determined which dealerships survived by their fealty to the Democrat party, gave $4 Billion to Fiat to buy Chrysler and did it all illegally and with taxpayer monies. Without a vote. Not to mention taxpayer subsidies of the Volt, which nobody wants. A classic example of government overreach. Numerous bankruptcy experts have detailed the advantages of going through bankruptcy rather than a government bailout.

So we still have all the structural problems that put them into the bankruptcy situation in the first place, including union bennies that make GM cars far more expensive than their “imported” competition. GM even took some of the bailout monies and sent truck manufacturing to Mexico.

Yes. Romneycare has been a nightmare for those living in Massachusetts, for a variety of reasons. Some of the consequences include the most rapidly increasing health care costs of any state, access, and physicians leaving the area and the profession. But Romneycare was a bipartisan effort, and the state will have to fix the consequences of their largess, somehow, in a bipartisan manner. GM, on the other hand, will never pay back what was bailed out, and will continue to produce a product that can’t compete with their global rivalries. Even with subsidies.

There are a number of factual inaccuracies in the article, but the main point, that Romney shouldn’t criticize a failed bailout–by fiat–of tens of billions of dollars because of a failed state healthcare plan decided in a bipartisan manner, is specious. IF Romney becomes president and orders everyone to buy health insurance AND Chevy Volts, then we have some problems.

Posted by Bluffricky | Report as abusive

While I won’t argue for or against the bailout here, I do have one thing to throw out there… Where has all the accountability gone?
Was SOX supposed to deter this sort of activity? If the financials were true, and the exectutives signed attesting they are correct to the best of their knowledge, why would we bail out a company that was headed for certain disaster and didn’t do anything about it?! Why does it require a bailout to ditch car lines that don’t produce profit(ie Saturn/Pontiac)? This didn’t happen overnight…

Posted by YUPtrev | Report as abusive

Poorly researched article, especially given that this is recent history. GM did go through a “managed” bankruptcy. This is not about politics or philosophy, but about letting the markets work properly without the interference of “crony capitalism”. It is the same “crony capitalism” at work as in the bailout of the banks. When a company fails, big or small, it has to suffer its losses including the ultimate price of bankruptcy if need be. Without this, the markets cannot function properly: effectively, the government is letting certain companies profit but not suffer losses. This is a devastating policy and set of actions for the economy, far more perilous than letting GM or Chrysler go bust.

I’m not a Romney supporter, never would be of someone who gets endorsed by Trump and flip flops so much. But he’s right on this one. Perhaps because it’s the one area he knows quite well from his days at Bain Capital. Obama simply doesn’t know what he’s doing when it comes to business or economics. All those ads against him about foreign policy and defence were misplaced. His real failing is in business, economics, commerce, management, and a lack of guts and insight to do the right thing. His strength is in smooth talking, confidence, and charisma but that doesn’t make up for the critical damage he is doing to the US and indeed the world.

Posted by Sal20111 | Report as abusive

Romney’s policy position can be summed up as: “I want to be President, so vote for me.”

Good luck with all that.

Posted by AlkalineState | Report as abusive

Matthewslyman observes: “Bailing out the auto industry = the government getting taxpayers involved in a very risky business investment with money they didn’t have (exactly what they’re not supposed to do).”

As opposed to a trillion dollar war in Iraq that has yielded some…. great returns? Recall, this is a country that didn’t own a working helicopter when Bush launched ‘shock-and-awe.’

Your scrutiny of government spending appears to be misbalanced.

Posted by AlkalineState | Report as abusive

@Alkaline, no one is saying the trillions of dollars war in Iraq is anything but disastrous. But all of these moves are of the same “crony capitalism” origins. Wars for transferring taxpayer money to the so-called defence industry, the appetite of which is actually becoming the greatest threat to the national security it professes to guard, the bank robbery of bailing out rich bankers with taxpayer money, and the same for GM and Chrysler. Similar actions and mindset. All of Obama’s flock will shout TARP was started by Bush. Sure, but Obama led it forward with gusto. Both Bush and Obama are the worst examples of crony capitalism.

Posted by Sal20111 | Report as abusive

Very informative…

Posted by Lord_Foxdrake | Report as abusive

A President will do what comes naturally to him. This is clear to voters during the campaign. Romney is the sole exception. No telling what he will actually do in office.

If America was a corporation in trouble, the REAL Mitt would be the right man. It is not natural for him to lead a democratic nation.

Posted by XRayD | Report as abusive

I bet $10,000 that Ingrassia is a Democrat voter.

The story is more of a hit job on Romney than an objective set of observations. And that is how Reuters is run: as an election machine for the Obama administration.

Posted by eleno | Report as abusive

Bashing the auto industry might not be a smart idea in a Michigan primary but it is definitely not a dumb move for the general election. US taxpayers are going to lose well over $60B bailing out Chrysler and GM. Michigan in the presidential election is seen as a solid lock for Obama and should it be won by a Republican it would signal a massive landslide.

So clearly when it comes to the Presidential election Michigan doesn’t matter for the Republicans. Being able to use the bailout as an issue can play very very well. Afterall people are irrate at the banks being bailed out by TARP, how many realize that the banks already paid back their TARP money with a profit to Uncle Sam? You can’t say that for the TARP loans to Fannie, Freddie, GM or Chrysler. Add then all up and it is $100’s of billions of taxpayer dollars wasted.

Posted by ggl | Report as abusive