Much as it pains me to say it, Mitt Romney’s op-ed in today’s NY Times is not only a deft political move (drawing on his childhood in Detroit and his father’s success in the auto industry as well as his own business turnaround experience), but also makes sense on the merits. At least I have the modest consolation of having gotten there first. Maybe he’s started reading BMG! Anyway, here’s his basic argument.
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.
Romney argues that, to succeed, Detroit must (1) eliminate the cost disadvantage relative to foreign auto makers; and (2) fire current management. For that reason, he rejects the idea of supplying additional funds to the companies as they presently exist: “don’t ask Washington to give shareholders and bondholders a free pass – they bet on management and they lost.”
His bottom line mirrors the “Chapter 11 with government backing” line that seems to be making the rounds.
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.
One of my favorite sayings is that even a stopped clock is right twice a day.