Obama and Romney Were Both for Letting Detroit Go Bankrupt

           Mitt Romney’s victory over Rick Santorum in the Michigan primary on Tuesday showed that a supposed political liability – his opposition to government bailout of the auto industry – may not have hurt him much.  In fact his position and that of President Barack Obama weren’t far apart, so the issue may go away in a race for the presidency.
           
            President Obama spoke on Tuesday in Washington to a United Auto Workers union conference to highlight his role in the bailout. (He's also visited Michigan a dozen or so times since his election.)  His purpose was to distinguish the president’s stance from Romney’s, claim credit for the relative health of the U.S. auto industry and perhaps to divert votes from the former Massachusetts governor. Romney is the front-runner and could pose formidable opposition to the president’s re-election in November.

            President Obama’s contention that GM and Chrysler surely would have been liquidated without government help, costing millions of jobs and perhaps have gone out of business rests on the assumption that no one but the United States and Canada could muster the $85 billion of financing that was used to restructure the two automakers in mid-2009. That’s why Washington’s automotive task force supervised the expedited bankruptcies and restructuring of the two companies in the early months of his presidency.

            Critics of the president say too much value was awarded to the UAW and Canadian Auto Workers health care trusts in the bankruptcies, and too little to holders of GM bonds.

            Mitt Romney had earlier opposed a pure bailout, wth the U.S. simply providing loans or grants as a means of helping the ailing automakers. Ford, GM and Chrysler executives had jetted to Washington to highlight the industry’s fragile financial condition. In a November 18, 2008 editorial entitled “Let Detroit Go Bankrupt” Romney said bankruptcy was preferable to bailout, prompting political analysts to warn that his position might hurt him with voters in Michigan, the state where he was born and raised.

            Romney also has argued that capital markets well might have provided the financing for a GM bankruptcy if given a chance – an opinion perhaps bolstered by his years as chief executive of Bain Capital, one of the world’s leading private equity company.

            “A managed bankruptcy may be the only path to the fundamental restructuring the industry needs,” the editorial read. “It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.”

            Romney has said that he would take steps to bail out the U.S. financial system if it was in danger of implosion, but he’s not in favor of bailing out individual institutions that are in danger of failing.

            Chrysler filed for bankruptcy in April, 2009, GM in June, 2009. Both bankruptcies were initiated and supervised by the U.S. Treasury’s automotive task force.  In other words, the Obama administration pursued more or less the exact "managed bankruptcy" laid out by Romney six months earlier. The difference is that $25 billion of U.S. money is now tied up in GM common shares.

            Romney’s editorial also recommended that GM and Chrysler “management, as is, must go.” The Obama administration’s automotive task force evidently agreed: The U.S. Treasury fired GM chief executive officer Rick Wagoner; Chrysler chief executive officer Bob Nardelli resigned under pressure.

            The Michigan primary was a difficult victory for Romney.  He edged Santorum by a margin of 41-38, with the remaining percentages split between Newt Gingrich and Ron Paul.  But the close margin of victory may relate to the nature of GOP primaries, which tend to bring out voters who are attracted to a more conservative message on social issues like those espoused by Santorum.  Romney has deliberately steered clear of social issues, leading some GOP voters to reject him as lacking in conservative credentials.

            With economic statistics improving, Romney faces an uphill fight against President Obama if he gets the nomination.  But if he makes it to Washington, he’ll be firmly on record as opposing government bailouts for failing companies and industries.


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