Tuesday, October 30, 2012

Romney's quicksilver Detroit turnaround

Can anyone stand yet another picking over Romney's actual position(s) regarding the Detroit bailouts?

Despite the reams that have been written, what Romney actually recommended in his now-famous Nov. 2008 op-ed and in subsequent elaborations remains elusive -- as is generally the case when you're dealing with a consummate bullshitter. Still, I've combed some of  his pronouncements from November 2008 through June 2009 and would venture to clarify a few points:

1) Romney never called for the liquidation of GM or Chrysler. That much should be obvious -- though his call for a "managed bankruptcy" to commence immediately upon the companies running out of money following their request for government aid in November 2008 would probably have led to liquidation.

2) By pronouncing "Detroit needs a turnaround, not a check," Romney set up a  false choice. As the event proved, GM and Chrysler both needed both -- first one, and then the other.

3) In calling for a "managed bankruptcy" in his November 2008 op-ed, Romney did not explicitly recommend a privately funded turnaround.  Rather, with a calculated vagueness that has since become numbingly familiar, he left unstated how and by whom the companies' continued operations would be funded.

4) When the Obama administration did apply itself, at the appropriate moment, to executing the turnaround Romney had called for seven months earlier, Romney again reacted characteristically: he carped. To the extent that the Obama administration followed his prior generic prescriptions -- which would apply to any bankruptcy workout -- he found new, mostly bogus objections (just as, when Obama followed his blueprint for national health reform -- impose an individual mandate and drop the public option -- Romney shifted the focus of his vilification).

5) In Romney's real-time (and subsequent) criticism of the actual bailout, the real scandal is in what he was scandalized by: honoring the auto makers' past commitments to retirees, and orienting the companies toward making fuel-efficient cars.

The first point has become the main bone of contention: what did Romney suggest about funding in his Nov. 2008 op-ed? First, he decried "writing a check" under the terms proposed -- as a bridge loan, contingent only on the auto makers coming up with turnaround plans.  His declaration that "Detroit needs a turnaround, not a check," begs the question of how the turnaround would be funded.  Later, after detailing various operational changes and changes in operating conditions (shed labor costs, fire current management,  cut new labor deals, trim management perks, ease up on dealers, invest in fuel-saving designs), he dropped this pearl of wisdom regarding financing: "It is not wrong to ask for government help, but the automakers should come up with a win-win proposition." And then this: "The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk."

That last prescription has led some to assert that Romney was proposing a "free-fall" bankruptcy, with no prepackaged financing deal or debtor-in-possession financing to ensure that the companies would emerge from the process.  I'm not sure that's clear.  It seems to me that Romney simply left unaddressed the question of which parties would provide what financing when (and by the way, Romney later carped when Obama did backstop car owners' warranties as a prelude to the restructuring).

In subsequent months, Romney dropped scattered hints with regard to how he had envisioned funding the bankruptcy. On March 31, 2009, speaking to John Roberts on American Morning, he briefly and equivocally praised Obama for suggesting that bankruptcy might be necessary -- and also suggested that his November prescription might have included DIP financing, perhaps government-provided:
ROBERTS: Welcome back to the Most News in the Morning. The executive vice president of Ford breaking some news on AMERICAN MORNING saying thanks, but no thanks to taxpayer money. GM and Chrysler, meanwhile, given weeks to make big changes and the president is keeping bankruptcy on the table. So will the president's plan work?

Joining me now, former presidential candidate Mitt Romney who is in Chicago for us this morning. So what do you think, governor, of the president's plan? You know because we hear reaction across the spectrum from the republican party some like it, some don't. What do you think?

MITT ROMNEY, FMR. PRESIDENTIAL CANDIDATE: Well, I think a lot of people expected the president just to cave and to write a big check and to hope for the better. I'm glad that he's expressing some backbone on this saying to those guys, hey you got to get your house in order or you guys are gone and you're going to bankruptcy. That is something I think he should have said months ago [n.b. Obama had been in office all of two and half months at this point].

There were a number of us that said that bankruptcy or a bankruptcy-like process was something that was needed to get GM and Chrysler, you know, on their feet again. But by the way, kudos to Ford for running itself independently and apparently making a go of it on its own.

ROBERTS: Let me just bring you back to what you were saying about bankruptcy. In fact, you authored a column on it, let's pull a quote from that. You said, in a managed bankruptcy, the federal government would propel newly competitive and viable automakers rather than seal their fate with a bailout check. Do you still think that that is the best idea to allow these companies to go into bankruptcy and restructure and then emerge?

ROMNEY: Well, it's clear that just writing checks is not the answer. It really keeps the bondholders and the UAW and other stakeholders from the necessary haircuts that allow these companies to be competitive. You either have to go through a bankruptcy process, a pre-packaged bankruptcy or special legislation, giving the - an entity the power to get these companies through these difficult times. Or if the parties want to do it voluntarily, great. But if they can't do that, apparently at this stage, it's looking like they haven't been able to. Then you're going to have to have that kind of a club to get these companies to be able to restructure their excessive costs.
On May 31, speaking to Chris Wallace on Fox News Sunday, he suggested directly that government-provided DIP financing might be appropriate:
WALLACE: Let's talk about one of the president's big initiatives in an area that you have a lot of personal and even family history in, and that, of course, is the auto business.

It looks like General Motors will file for bankruptcy tomorrow, with the government putting up a total -- what they did in the past and what they're going to do now -- of $50 billion, and taking roughly a 70 percent ownership stake.

Back in November, you wrote an article in which you said -- this is before there had been any bailouts by President Bush -- no bailouts, let's go to a managed bankruptcy. Looking back, wouldn't that, at time when we were in the depths of the recession, when we were really right in the midst of what looked like a financial crisis -- wouldn't that have been disastrous for the economy?

ROMNEY: It would have been precisely the right thing to do for the economy. To help General Motors at that point, before it had received tens of billions of dollars from the government, go through a structured process, either in court or out of court, to rid itself of its excessive union contract obligations would have been the right course.

And at that point, the government could have helped with warranty guarantees and so forth, with debtor-in-possession financing, to get the company back on its feet.

We wouldn't have closed the business down or liquidated. We instead would have helped it restructure at time when government funding was not going to add billions of dollars to the American taxpayers' burden. It was the right course to take.

It's being taken now, too late, unfortunately. And as a result, the government ends up with over 70 percent of G.M. and the UAW some 17 percent [my emphasis].
He then outlined what would become the keynote of his subsequent criticism: that Obama would impose the heavy hand of government on the companies as a condition of rescue:
Look, let me -- let me talk about going forward. The right thing going forward for General Motors and for our government is to get government out of the direction of General Motors.

President Obama should indicate that immediately upon this bankruptcy all of the shares held by government will be distributed to the American taxpayers and therefore that the public will be able to vote just like shareholders, and likewise that the UAW -- the head of the UAW ought to to indicate all of our shares are going to our members, not to the head of the UAW.

We don't want a president and a head of the UAW running General Motors. The American public ought to own that enterprise.

WALLACE: So who would run General Motors?

ROMNEY: Well, the shareholders, the shareholders that -- and you'll see Americans trade shares, buy and sell amongst themselves. They'll probably consolidate. There'll be shareholder meetings. They can elect their board of directors.

And the company will be run to create products that Americans want, that can be competitive globally. They can hire and fire the CEO as they want. You don't want politicians in Washington saying, OK, we want to you build this kind of car, and, Oh, that factory over here -- it's in Senator So-and-So's district and you can't close that one, even though it's the high-cost factory. You have to open another one over here.

You don't want politics directing American corporations. That whole approach, which obviously is one that Barack Obama is wedded to, is the wrong approach for America. Americans recognize it. Individuals, the free market system, is what has built America to the nation we are, and that's how we ought to go forward.

WALLACE: But, Governor, for all the doomsayers -- Chrysler got a bailout. Now it's gone through bankruptcy, seems to be speeding through bankruptcy court. They're going to basically be bought by Fiat and they're going to, it looks like, be a viable company within some period of time, of many weeks.

ROMNEY: Precisely my view. That's why I wrote, as I did in November, that these companies need to go through a process of shedding their excess costs, hopefully outside the bankruptcy court, but in fact both of them look like they'll go into bankruptcy court.

But let me underscore one thing, Chris, and that is this is a real sad day. I mean, I'm a son of Detroit. My dad was an auto executive. You know, I drive American cars. I love American cars. My heart bleeds for the people in Michigan and Detroit, for all those auto workers.

This is a very, very sad circumstance for this country. And it represents bad decisions by management, overreaching by the UAW. It's really -- it's really tragic in a lot of respects. And it has not been well played either, in my view, by the Bush administration or by the Obama administration.
In subsequent interviews, and two years later in the debates, Romney charged that Obama "gave the companies to the UAW" and "gave them to the Sierra Club." 

With regard to the first charge, what happened was that the administration put forward a plan that valued the car companies' commitments to union retirees more highly than their obligations to bondholders. In the wake of a Feb. 22, 2012 primary debate, Politifact outlined what the union retirees got and what they risked:
During the process, the United Auto Workers, the union representing car company employees and retirees, made concessions to help the companies stop bleeding. We consulted several sources for an explanation on what each side gave.

In sum, the union eased demands on wages, overtime pay, job security and, most significantly, health benefits. In 2007, the union and car companies had agreed to hand over management of retiree health benefits to a trust fund. The companies agreed to put money in the fund, and the union assumed the uncertainties of rising health care costs and investment fluctuations.

But in 2009, the car companies were on the brink and had no cash to put in the fund. The alternative contribution: company stock.

That’s how an independent health care trust for UAW beneficiaries ended up owning Chrysler and GM stock. As of February 2012, the trust holds a 41.5 percent stake in Chrysler and a 10.3 percent stake in General Motors.
Politifact then resorted to outside perspective (and 'inside perspective' from Steve Rattner, Obama's car czar):
Next, we talked to a couple of industry analysts for their take on Romney’s statement, again, that Obama "gave the (auto) companies to the union."

"Giveaway is not the right word because the unions gave up cash payments. They took on some risk," said Jeremy Anwyl, vice chairman of edmunds.com, a consumer-oriented automotive website. "For the union there was no guarantee."

Steve Rattner, who served as Obama’s "car czar" told us in an email, "the ownership wasn't ‘given’ to the VEBA; the VEBA received it in return for giving up very large claims it held against the company."

Kristin Dziczek with the Center for Automotive Research, added that the union members were also creditors in this situation because the car companies were contractually obligated to pay for their health benefits.

"The retiree health care trust was owed billions of dollars," she said.

And since the car companies didn’t have the billions on hand, they chipped in equity instead. In the case of GM, the stock could be sold at any time, Dziczek said. But since Chrysler is not a publicly traded company, the UAW health trust is stuck with it for now.

Rattner added that the stocks didn’t come with voting rights.

So did Obama give the car companies to the union?

Said Dziczek: "The majority stakeholder in Chrysler is Fiat. (The health care trust) is not the majority stakeholder in GM. They don’t have a voting seat as a result of this. They don’t have a vote on the board. They’re not managing the company."

"Who is running these companies? Not the UAW."
The focus of Romney's indignation, real or ginned up, is that Obama insisted that the companies' commitments to retired workers be honored, to the extent possible, in the only currency available. That non-voting equity does not affect the companies' operation or their profitability.  As Romney reminded us in a different context, "corporations are people too," and their profits go into people's pockets. He is outraged, however, when those "people" include a large contingent of retired workers.

As for giving the companies to the Sierra club, what does that mean? Presumably, imposing tough CAFE standards on them -- though Romney earlier suggested that any bankruptcy deal commit them to investing in fuel efficiency research.  But that was before he had an actual deal crafted by a Democratic president to criticize.  Back in November 2008, morever, Romney had not yet morphed into the full-figure climate change denier throwing charges around in the 2011-2012 debates.

Update: just reread a Jonathan Cohn post about Romney's bankruptcy position. I'd forgotten that in the primary debates, Romney became  unequivocal about his 'original intent' back in Nov. 2008:
My view with regards to the bailout was that whether it was by President Bush or by President Obama, it was the wrong way to go. I said from the very beginning they should go through a managed bankruptcy process, a private bankruptcy process. We have capital markets and bankruptcy... My plan, we would have had a private sector bailout with the private sector restructuring and bankruptcy with the private sector guiding the direction as opposed to what we had with government playing its heavy hand.
Does this mean that all this parsing of Romney's early hints and equivocations is an empty exercise? If it's seen as trying to pin down an actual Romney meaning, yes. But the point is that Romney always leaves the "meaning" of his prescriptions malleable. Perhaps a retroactive clarification, implicitly undone in the final debate, simply illustrates that point.

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