Detroit’s had a lot of problems in the last decade, more so than any other city in the US (save the exceptional natural disaster of New Orleans). It’s hard to read news about Detroit without feeling great sympathy to those families who’ve lived through its heyday and are now fighting through its nadir. The town is struggling. The question since 2008 has been, How can we help?
Let Detroit Go Bankrupt
That’s what Mitt Romney said in November 2008. He wanted people to hear it. Which is why he asked to have it published in the New York Times.
As his campaign strives for legitimacy, Romney has recently written another op-ed, this time for The Detroit News. The Michigan-born Mittens Romney reiterated his 2008 stance and accused President Obama of “crony capitalism.” He says:
My view at the time — and I set it out plainly in an op-ed in the New York Times — was that “the American auto industry is vital to our national interest as an employer and as a hub for manufacturing.” Instead of a bailout, I favored “managed bankruptcy” as the way forward.
Managed bankruptcy may sound like a death knell. But in fact, it is a way for a troubled company to restructure itself rapidly, entering and leaving the courtroom sometimes in weeks or months instead of years, and then returning to profitable operation.
Many people thought this bail-out (and a smaller one involving Chrysler, an even sicker firm) unwise. Governments have historically been lousy stewards of industry. Lovers of free markets (including The Economist) feared that Mr Obama might use GM as a political tool: perhaps favouring the unions who donate to Democrats or forcing the firm to build smaller, greener cars than consumers want to buy. The label “Government Motors” quickly stuck, evoking images of clunky committee-built cars that burned banknotes instead of petrol—all run by what Sarah Palin might call the socialist-in-chief.
Yet the doomsayers were wrong. Unlike, say, France’s President Nicolas Sarkozy, who used public funds to support Renault and Peugeot-Citroën on condition that they did not close factories in France, Mr Obama has been tough from the start. GM had to promise to slim down dramatically—cutting jobs, shuttering factories and shedding brands—to win its lifeline. The firm was forced to declare bankruptcy. Shareholders were wiped out. Top managers were swept aside. Unions did win some special favours: when Chrysler was divided among its creditors, for example, a union health fund did far better than secured bondholders whose claims should have been senior. Congress has put pressure on GM to build new models in America rather than Asia, and to keep open dealerships in certain electoral districts. But by and large Mr Obama has not used his stakes in GM and Chrysler for political ends. On the contrary, his goal has been to restore both firms to health and then get out as quickly as possible. GM is now profitable again and Chrysler, managed by Fiat, is making progress. Taxpayers might even turn a profit when GM is sold.
Responding to the Detroit News op-ed by Romney last week, the Economist wrote:
Even Ford, which avoided bankruptcy, feared the industry would collapse if GM went down. At the time that seemed like a real possibility. The credit markets were bone-dry, making the privately financed bankruptcy that Mr Romney favoured improbable. He conveniently ignores this bit of history in claiming to have been right all along.
Their point being: no private investor would have stepped forward to manage that bankruptcy. Not even Bain Capital.
And here is our president speaking in Detroit yesterday:
Right around 4:15 he quotes the title of initial Romney’s op-ed. And for the briefest of moments, you can see he wants to revel in his opponent’s shame. He begins to go off-script, and then stops himself. I love this moment. It’s very human. He has this audience in the palm of his hand and they would allow him to strut, but he doesn’t.
I like this headline: The American Auto Industry Is Back. I like that a lot.