In Michigan, will Romney regret opposing auto bailout?

Fri Feb 10, 2012 9:01am EST

1 of 2. Republican presidential candidate Mitt Romney looks at the underside of a car during a campaign stop at Macomb Community College, Center for Alternative Fuels, in Warren, Michigan, January 11, 2008.

Credit: Reuters/Rebecca Cook

Related Topics

(Reuters) - Four years ago, Republican presidential candidate Mitt Romney stood at the gates of a Michigan factory and vowed to fight for the U.S. auto industry as it slid toward collapse.

Now, with Romney desperate for a win in Michigan's primary on February 28, he will have to explain to voters why later in 2008, he called for the U.S. government to stand aside as auto companies at the brink of insolvency begged for help.

Romney, the son of a former auto executive and Michigan governor, opposed an $81 billion government bailout that ensured the survival of General Motors and Chrysler and that some industry experts say saved 1.3 million jobs.

The former private equity executive, who built a fortune in part by overhauling struggling businesses, has argued that the auto industry would have recovered on its own.

The industry's unlikely rebound has been a rare feel-good story in Michigan, which is struggling to emerge from the 2007-2009 recession. It has inspired Super Bowl TV ads linking the industry's turnaround with national pride, and given Democratic President Barack Obama a success story to tout as evidence that his recession-fighting efforts are paying off.

But for Romney, who in 2008 wrote a New York Times opinion piece titled "Let Detroit Go Bankrupt," the industry's comeback poses a delicate political question: Whether he can defend his stance on the bailout while deflecting familiar accusations he flip-flops on issues and has little empathy for the struggles of working Americans.

"It's just going to be hard for him to explain, and yet he's going to have to continue to make that case or come up with some new answer," said Bill Ballenger, editor of the Inside Michigan Politics newsletter.

Romney's anti-bailout stance is unlikely to keep him from winning conservatives' support in Michigan's Republican primary, political analysts say. Recent polls show him leading the race by 5 to 15 percentage points, and he won the primary in 2008 during his unsuccessful run for the Republican nomination.

But if he goes on to win the Republican nomination, his stance could be a liability in a matchup against Obama this autumn, when Michigan will be an important battleground, political analysts say.

OBAMA TOUTS SUCCESS

Romney's Republican rivals Newt Gingrich, Rick Santorum and Ron Paul also opposed the auto bailout, but none has spoken so extensively on the topic.

Romney's father, George Romney, ran American Motors in the 1950s and 1960s before serving as Michigan governor. Mitt Romney announced his 2008 presidential bid in Michigan, on a stage flanked by Detroit-made cars.

During that campaign, Romney called for quadrupling federal spending on energy and automotive research, to $20 billion a year.

He criticized Senator John McCain, the eventual Republican nominee, for suggesting that some lost manufacturing jobs would not return to Michigan.

"The auto industry and all its jobs do not have to be lost. And I am one man who will work to transform the industry and save those jobs," Romney said at the Detroit Economic Club on January 14, 2008.

But in November of that year, Romney argued for a hands-off approach as Republican President George W. Bush weighed emergency loans for GM, Chrysler and Ford.

Romney argued in the Times article that the automakers should not get government help but instead go through a private bankruptcy process to trim costs.

That is not what happened.

The U.S. government, first under Bush and then under Obama, committed $49.5 billion in working capital and loans to GM and $12.5 billion to Chrysler. Nearly $20 billion more in related financing went to suppliers, dealers and auto-financing firms.

The Obama administration pushed the bailed-out automakers into bankruptcy in early 2009, taking ownership of GM and forcing Chrysler into a merger with Italy's Fiat SpA.

The bailout led to tens of thousands of job cuts and ultimately could cost the government $20 billion. But it allowed the companies to become profitable at lower sales volumes by revamping labor contracts and reducing capacity.

GM regained its title as the world's top-selling automaker last month. Chrysler recently told workers they would get a bonus based on the company's strong performance.

Michigan's battered economy has begun to show signs of improvement. The state's unemployment rate fell from 14.1 percent in August 2009 to 9.8 percent in November 2011 -- still well above the national average.

Obama and top administration officials have made frequent trips to Michigan to tout the revitalization, arguably their top economic accomplishment.

"It's good to remember the fact that there were some folks who were willing to let this industry die," Obama said last week, in an apparent jab at Romney.

The Romney campaign has stuck to its guns, arguing that the administration would have saved billions of dollars if it had followed Romney's advice.

"Events have proved Governor Romney exactly right," campaign spokeswoman Amanda Henneberg said. "It is unfortunate that the government first attempted a bailout, which was precisely as unsuccessful as he predicted, cost taxpayers billions, and left the government improperly entangled in the private sector."

DEBATING THE GOVERNMENT'S ROLE

Romney supporters point out that airlines and other large businesses have been able to reorganize in bankruptcy without government help.

"There were two ways to do it - either use crony capitalism, where government picks the winners and losers, or you go through the traditional reorganization process," said Saul Anuzis, a Romney supporter and former head of the Michigan Republican Party.

Sean McAlinden, chief economist at the Center for Automotive Research, or CAR, said there was one problem with that argument: a private bankruptcy for automakers would not have been possible during the 2008-2009 financial crisis because credit markets were frozen and GM and Chrysler were unable to get private financing to keep operating through bankruptcy.

Without federal help, the companies could have been forced to shut down, which would have devastated parts suppliers and threatened solvent carmakers such as Ford and Toyota, McAlinden said.

The intervention saved 1.3 million jobs in 2009, CAR estimates.

"It was the most successful peacetime industrial intervention in U.S. history," McAlinden said.

In presidential elections, Michigan has not backed a Republican candidate since 1988. Obama won the state by 16 points in 2008. The state is widely seen as a toss-up this fall because of the battering it took during the recession.

The bailout could give Obama an edge in November.

The president's job approval rating averaged 48 percent in Michigan in 2011, according to Gallup - his best showing among the 13 "swing" states widely projected to be especially competitive this fall.

"I would think Obama gets his fair share of credit, and that would be among all voters - Democrat, Republican and independent," said Craig Ruff, a senior policy fellow at Public Sector Consultants, a nonpartisan Michigan think tank.

"He won't have an easy time carrying Michigan ... but it's certainly a leg up for him."

(Additional reporting by John Crawley; Editing by David Lindsey and Peter Cooney)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (17)
he should drive hyundai or bmw… they are the american brands of bible belt…

Feb 10, 2012 10:39am EST  --  Report as abuse
jaham wrote:
…or he may not regret it at all; we do have a well established bankruptcy court system that has plenty of legal precedent to have dealt with auto manufacturers insolvency in an efficient manner.

Romney may regret that the public (particularly liberals) seems to not understand this concept.

Feb 10, 2012 10:41am EST  --  Report as abuse
davec.0121 wrote:
Jaham: you do not appear to understand the concept, as noted in the article, that the traditional bankruptcy proceedings would not have worked since there were no sources other than the government for loans to keep the companies going during the proceedings. The result would have been that they would have to ceased operations and laid off of hundreds of thousands of workers without the government loans. Futhermore, there was a good chance that much of industry would have disappeared altogether, particularly Chrysler. And don’t forget, the loans and other government help was initiated by that notorious liberal George W. Bush. Just as the bank bailouts were.

Feb 10, 2012 11:14am EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.