Saturday, May 12, 2012

Political Hypocrisy on Auto Bailouts

John Stewart did a great bit Tuesday night of Republicans taking completely hypocritical positions in their need to hate everything Obama has done. He played up the cognitive dissonance angle...

Rachel Maddow concentrated on the Romney claiming credit for the auto bailout hypocrisy (this might require the Microsoft Silverlight plugin)...

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Here's the full interview Romney gave Monday in which he took credit for saving the auto industry:



So it's really not taken out of context. It's also not off the cuff. The Saturday before, a Romney campaign aide said essentially the same thing, Romney campaign aide claims auto bailout was Romney's idea. "'[Romney's] position on the bailout was exactly what President Obama followed. I know it infuriates them to hear that,' Eric Fehrnstrom, senior adviser to the Romney campaign, said. 'The only economic success that President Obama has had is because he followed Mitt Romney's advice.'"

And here's Romney's NY Times op-ed from Nov 18, 2008, Let Detroit Go Bankrupt. Note that this was while Bush was still president and he approved the first part of the auto bailout. Here's the substance of what Romney said:

"IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed. Without that bailout, Detroit will need to drastically restructure itself. With it, 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."

He (as always) talks about his dad and then says the government should invest in basic research, not bailouts, ending with:

"But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost. The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. 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. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk. In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check."

Wikipedia details the auto-bailouts here. The problem was that the industry needed cash on hand to continue operations while it restructured. The problem was the financial crisis, caused a credit crisis and no one was lending money to GM or Chrysler. So the government stepped in to do so, took some ownership, and required changes. These weren't met. Obama created an overseeing task force (instead of a proposed car czar) and they put in a new CEO of GM and gave them more funds and another 60 days to make changes to avoid a chapter 11 bankruptcy even though they expected one to happen. It did in June.

So Romeny is saying they should have just gone into chapter 11 back in the fall of 2008 but again, no bank or private equity firm (including Bain Capital) would give them enough funds to remain operational during a restructuring. The government was the lender of last resort and essentially put them through restructuring. Something they could have done with the banks and TARP funds but didn't.

During his campaign this year, on Feb 14, 2012, Romney wrote an op-ed in The Detroit News reiterating his position, U.S. autos bailout 'was crony capitalism on a grand scale.

"Instead of doing the right thing and standing up to union bosses, Obama rewarded them. A labor union that had contributed millions to Democrats and his election campaign was granted an ownership share of Chrysler and a major stake in GM, two flagships of the industry.The U.S. Department of Treasury — American taxpayers — was asked to become a majority stockholder of GM. And a politically connected and ethically challenged Obama-campaign contributor, the financier Steven Rattner, was asked to preside over all this as auto czar. This was crony capitalism on a grand scale. 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."

He goes on, but the crux of his argument is this:

"[Chrysler and GM] were saddled with an accumulation of labor, pension, and real estate costs that made them unsustainable. Health and retirement benefits alone amounted to an extra $2,000 baked into the price of every car they produced. Shorn of those excess costs, and shorn of the bungling management that had driven them into a deep rut, they could re-emerge as vibrant and competitive companies. "

I don't really understand Romney's positions on corporate ownership. He doesn't want unions to have ownership in the company they work for. In his times editorial he says his dad cut his own pay and bought stock in the company, I assume because it would be an incentive to make the company profitable. But then he said "No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options." He also wants "profit sharing or stock grants to all employees." So stock ownership is good, except when it isn't and it should be for everyone but not unions. Got it.

He also talked a lot about how US companies have $2,000 more cost per car than foreign competitors like Toyota because of negotiated wages and benefits packages for workers and retirees. Now some of those did need to be restructures and the UAW was willing but it's not an easy thing to do. Romney doesn't mention that other nations have universal health care so that employers don't have the burden of paying for their workers (and retirees) health care. He's opposed to Obamacare, even though he's obviously for Romneycare. So I guess each state with auto manufacturing should come up with their own health care plan to alleviate the pressure of providing health care to workers so that GM can compete with Japan. Why not adopt the Japanese model of health care to better compete?

It's worth noting that Romney wasn't the only Republican saying the bailouts were a bad idea and couldn't possibly work.

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