Read the November 2008 commentary headlined “Let Detroit go bankrupt,” by Mitt Romney in the New York Times, and you will find good ideas for the American auto industry. The Republican presidential candidate called for Detroit “to drastically restructure itself.” He urged automakers to address “their huge disadvantage in costs relative to foreign brands.” He declared that management “must go,” and proposed a “new direction” for the United Auto Workers.”
Romney wanted to see a “managed bankruptcy,” the companies faced with a process that would result in such big changes.
What role would the federal government play? Romney discussed increased support for basic research in energy, proposing a jump from $4 billion a year to $20 billion a year. He pointed to tax changes and the feds providing “guarantees for post-bankruptcy financing.”
Was that the plan ultimately applied, allowing Romney to argue last week that “I’ll take a lot of credit for the fact that this industry’s come back”? No, it was not.
Consider what the former Massachusetts governor said a week ago in Cleveland: “My own view, by the way, was that the auto companies needed to go through bankruptcy before government help. And frankly, that’s finally what the president did.” Actually, that’s not the route President Obama took. Romney advised no government help until after bankruptcy. The president understood such a course wasn’t practical, and would have been devastating to Ohio, Michigan and other states woven tightly into the auto industry.
To survive bankruptcy requires financing, and that wasn’t available to automakers through private markets. In part, that reflected their poor position. Most telling was the collapse of the credit market, the calamity on Wall Street just months removed, the downward-bound economy losing jobs at a pace of 700,000 per month. The difficult decision for the president was whether to front the public money to General Motors and Chrysler.
The president chose to do so, the feds putting up $80 billion in the end. Romney opposed such a step. Practically everyone understood the need to use the money as leverage, gaining changes like those Romney proposed — and the president achieved. George W. Bush pumped $13 billion into the two car companies with the requirement that they come up with a plan for viability.
The task force appointed by President Obama drove a hard bargain, the changes putting Detroit on the road to its recent revival, adding jobs and investment, Ohioans among the beneficiaries.
And if the public financing had not been there for the companies to get through bankruptcy? They would have run out of money, closed their doors, dismissed workers and faced liquidation. The fallout would have extended beyond GM and Chrysler. Ford may not have survived the tsunami as parts-makers and others in the supply chain felt the brutal punch, job losses soaring by the hundreds of thousands. That explains why Honda urged federal action. It, too, felt vulnerable.
As things stand, the public remains on the hook for roughly half, or $40 billion, of the bailout. Yet the return already has been substantial, and for that, the president deserves the credit. He made the choice to do more than let Detroit go bankrupt.