The headline of Mitt Romney’s November 18, 2008 piece in the New York Times was Let Detroit Go Bankrupt. He probably didn’t choose that headline, and he probably regrets that his name appeared under it. It has made it harder for him to talk about what he really recommended. Still, he cannot get away with saying that Obama did exactly what he proposed.
For context, Obama had been elected when Romney wrote that piece but he would not be inaugurated for two more months. It was President Bush who bailed the auto industry out with a $17.4 billion loan. Obama’s job was to manage the bailout.
Romney recommended that the government not provide emergency funding, which would have forced General Motors and Chrysler into immediate bankruptcy proceedings. In his column, he recommended using this opportunity to shatter the auto industry’s unions and claw back their compensation packages, including for retirees.
That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.
…A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs.
Ultimately, both Chrysler (April 2009) and General Motors (June 2009) filed for Chapter 11 bankruptcy, as Romney had suggested they should. But that was only after the government had infused them with about 39 billion dollars. The two bailouts prevented Chrysler and General Motors from being liquidated at bankruptcy. And that is the key issue for us when we look back at what happened at the time and judge Romney’s recommendations.
Without getting into the intricacies of bankruptcy law, the problem in November 2008 was that the financial sector of the economy had collapsed and there was no one to step in and make private sector investments in the auto industry. To pay their creditors, Chrysler and GM would have had to shut down their companies entirely and started selling off their assets as scrap. Estimates at the time were that this would cause the loss of at least three million jobs. It would have destroyed the auto parts industry and taken Ford down in the process.
If you read Mitt Romney’s column, you’ll see that he didn’t anticipate this problem. He talks about restructuring labor contracts and firing the management, but he doesn’t seem to realize that the businesses were not going to survive the bankruptcy process at all. Without the government money, there would be no businesses to manage and no need for unions because there would be no jobs.
People remember the headline, and they know that the industry was saved from extinction, and so they think Romney advocated letting the industry go extinct. He didn’t advocate that. But he did advocate something that would have had that result.
I think people give him too much credit because he’s been successful in business and he should have understood that his advice was unworkable. But, the truth is that his advice was probably totally disingenuous at the time. He knew that the bailout would be very unpopular and he wanted to go on the record as having opposed it. His column was more political calculation and positioning than it was an honest assessment. It was only two weeks after Obama had been elected and Romney was already trying to set himself up to win the 2012 Republican nomination.
So, today, Romney says that the companies went into bankruptcy, exactly as he had recommended that they do. But the bottom line is that the auto industry survived and prospered because of Bush’s bailout and Obama’s careful management, and the auto industry would be extinct today if Romney’s advice had been followed.