Unpacking Romney on GM Before We Vote
Below (IN BLUE and italics) is the entire and unedited original editorial that Mitt Romney wrote for the New York Times on November 18, 2008 under the title “Let Detroit Go Bankrupt.”  My comments, updating the story, are in black and indented. 

 

Why go back to the original editorial?  Regardless of which candidate or party anyone supports, we need to call leaders when they claim x in 2008 and then tell us in 2012 that he actually claimed the opposite of x.  In this instance, the multiple pivots has been particularly confusing, so we owe it to ourselves to sort this out before we vote, rather than discover after the election what we should have known before.

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.

Clearly the very first sentence is at odds with the position Romney is trying to pivot to today.  He cannot now claim credit for saving the auto industry through the bailout after stating in no uncertain terms here that the bailout will mean the end of the auto industry.

But, in the second debate, Governor Romney said this: “You took them bankrupt and that was a process that was necessary to get those companies back on their feet so they could start hiring more workers.  That is precisely what I recommended and ultimately what happened.”

You can hear Romney saying exactly this in the debate exchange over GM at this link.  Listen for yourself, compare it to the original editorial here, and make your own call.

You can read a very thorough and hard-hitting October 31, 2012 New York Times editorial that traces the candidates multiple pivots and position changes on this issue from the original editorial to the pivot during the Republican primary to another pivot in the second debate and, pivoting yet again, to the ads he is running in Ohio today.

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.

But in the bankruptcy made possible through a government bailout, during a financial crisis when private capitalwas simply not available, GM has ‘drastically restructured itself.’  The drastic restricting has allowed GM to become strong again, to hire more workers, and the 1 in 8 Ohio jobs linked to the auto industry did not disappear. 

Read in this business journal why the GM bailout might be the president’s finest hour.  And in this business journal why the restructuring will not work.  Either way, there is no question GM was drastically restructured.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

In the business journal noted above they point out that the “unions struck GM in 2007. The resolution of that strike moved retiree health care from the company's balance sheet to the union's. The company off-loaded $50 billion in obligations by creating a fund with $30 billion of its money. That also closed much of the expense gap between GM and its Japanese rivals in the U.S.”

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

This is precisely what the White House did.  Here is how the business journal put it: “The government hired the right guy to run GM. Ed Whitacre, the CEO who built SBC Communications, the smallest of the regional Bell phone companies, into the new AT&T, was an inspired choice as GM chairman. He promptly fired GM CEO Fritz Henderson.”

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

Reducing enmity requires both parties to be willing, labor and management.  This is where Romney’s party choosing in Wisconsin and Ohio and elsewhere to take away the right of workers to bargain collectively demonstrates a one-sidedness to this call to work together.

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Smart.  But it seems like the approach he is critical of here is exactly the approach he took to the extreme as CEO of Bain Capital, an approach his Republican rivals called 'vulture capitalism.'

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

It does appear to have turned out to be a free pass.  Management was fired.  The organization was drastically restructured.  And the federal loans have been paid back in full, and more important, GM is hiring.

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.

Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.

This is the background needed to make sense of current Romney ads claiming that the president's failed bailout, that Romney himself also takes credit for (?), is responsible for Chrysler shipping jobs to China...a claim that Chrysler denies and has resulted in auto industry executives speaking out against Romney's current ads, calling them "cynical campaign politics at its worst."  Read the recent New York Times editorial for even more on the context.