What’s
Wrong Today:
Mitt
Romney is touring Michigan, trolling for votes in the primary next Tuesday.
Among the clever things he continues to talk about is Obama’s epic fail in
bailing out the auto industry. He had
an op-ed in the Detroit News last Tuesday in which he stated:
“Three years ago,
in the midst of an economic crisis, a newly elected President Barack Obama
stepped in with a bailout for the auto industry. The indisputable good news is
that Chrysler and General Motors are still in business. The equally
indisputable bad news is that all the defects in President Obama’s management
of the American economy are evident in what he did.”
Elsewhere, Romney has said:
“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.”
The
crux of Romney’s argument is: If Obama had not acted, private companies would
have stepped in and run a “managed bankruptcy.”
So,
What’s Wrong?
Romney
ignores that in the fall of 2008,
before Obama was even sworn in, no one on
Wall Street or anywhere else was willing to lend anything to GM and Chrysler, let alone the $81
billion they and their financial arms eventually needed.
You
may remember that a competitor to Bain Capital, Cerberus, bought Chrysler from
Mercedes (at a bargain price) with a plan to do what private equity firms do
best: slash overheads, cut deals with employees and pound on vendors. They
failed.
So it’s tough for
Romney to acknowledge that the government ended up accomplishing what a private
equity firm like Romney’s couldn’t accomplish. What must be even more galling to him, when the government bailed out Chrysler, the government also indirectly bailed out his competitor
Cerberus.
We should
also remember his prior op-ed in November, 2008 in the New York Times:
“With it [the
bailout] , the automakers will stay the course — the suicidal course of
declining market shares, insurmountable labor and retiree burdens, technology atrophy,
product inferiority and never-ending job losses. Detroit needs a turnaround,
not a check.”
Romney’s
argument against the TARP bailout shows that he misunderstands what happened in the government bailout. The TARP bailout not only helped support
aggregate demand, it created an opportunity to adjust the cost structures for
GM and Chrysler in a way that private equity firms were not able to accomplish.
Workers and middle management trusted agreements made with the government in a
way that they could never trust a private equity firm.
So,
Mitt thinks he could have done even better. Better? Better than this?
Just two years after it was rescued and reconstituted
through bankruptcy and a government bailout, General Motors Co. cruised through
2011 to post the biggest profit in its history.
The 103-year-old company, leaner and
smarter under new management, cut costs by taking advantage of its size around
the globe. And its new products boosted sales so much that it has reclaimed the
title of world’s biggest automaker from Toyota. […]
…The
company’s performance in North America and Asia still helped it earn $7.6
billion for the year, beating the record of $6.7 billion set during the truck
boom in 1997.
Wait!
Maybe Mitt means better than this:
Detroit’s Big 3 all turn
profits in 2010, pulling out of long skid.
US automakers General Motors, Ford Motor Co., and Chrysler LLC each reported a
profitable 2010 Tuesday, with combined unit sales of cars and light trucks
topping 5.6 million, a 19 percent increase from the previous year. The results
are expected to help push the automotive industry – domestic and foreign
manufacturers selling in the US – to its first profitable year since 2005.
Even
better than that? Really? Boy, Mitt must be a wizard! Especially since even after Obama took office, GM and Chrysler searched frantically for paths to
avoid bankruptcy, including possible mergers. Chrysler held a one-week garage
sale of its assets in February 2009, inviting anyone with enough money to bid
for parts of the company. And no one bit.
Posing
as an economics wunderkind is one of Romney’s fantasies. It’s gotta hurt when
he realizes that perhaps he really doesn’t have the magic business touch after all.
Romney
could be forgiven if he had simply gotten it wrong three years ago; after all,
plenty of people got it wrong. Even The Economist magazine got it wrong. The
difference is that The Economist recognized that they were simply wrong and
admitted they were wrong.
But
Romney continues denying reality and is doubling down. He continues to argue
that requiring GM and Chrysler to go through a managed bankruptcy and
restructuring through normal private lending channels was a viable
option.
It’s
not just that Romney was wrong in 2008/2009; but that he doesn’t seem to have learned anything. Romney could
have just admitted that things worked out okay, said Obama made the right
choice and then moved on with his carpet bombing strategy against Santorum and
Gingrich.
But,
slogging on in this way, he proves he has limited business chops
and
is simply WRONG!
