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Judging by the number of times they have brought it up in Charlotte, N.C., Democrats are ecstatic about the resurgence of the American auto industry. They offer it as slam-dunk proof that government intervention can revive, not stifle, private enterprise.
Jennifer Granholm, former governor of Michigan, took her moment at the podium and got the crowd roaring as she touted President Barack Obama's response to the crisis. "He organized a rescue! He made the tough calls! And he saved the American auto industry! And you know, you know...Mitt Romney saw the same crisis and you know what he said: 'Let Detroit go bankrupt.' "
Democrats like that line about Romney so much that, later in the speech, they projected the headline on the gigantic screen behind Granholm.
But here are some facts. Romney wrote an op-ed for the New York Times in November 2008. The headline does say "Let Detroit go bankrupt," but Romney didn’t write that headline and those words don't appear in the text of the article. The line came from a headline writer at the New York Times.
We thought we should look at what Romney actually said and see if it represents the sort of callous tough talk that Granholm suggests.
Auto makers in crisis
When Romney wrote that piece, the Big Three - Ford, General Motors and Chrysler -- had just asked Washington for a bailout. With sales at their lowest levels in decades, credit markets frozen and cash running short, they were after $25 billion in loans. Democrats favored the deal if the government got a stake in the firms and could swap out some of the automaker CEOs. Many Republicans favored bankruptcy.
"I don't believe that the $25 billion they're talking about will make them survive," said Sen. Richard Shelby R-Ala. "It's just postponing the inevitable."
Generally, Republicans opposed government intervention. They believed the carmakers suffered from fundamental problems that only a bankruptcy could flush clean.
In that context, when people read the op-ed headline, they might have thought Romney meant "Let Detroit go belly up."
But that was not his point. Romney offered a more nuanced view of what ought to emerge out of a bankruptcy. It is worth reading what he said:
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 called for a "managed bankruptcy." He didn’t define the terms, but he did list some of the desired outcomes.
• New labor agreements to align pay and benefits to match those of workers at competitors such as BMW, Honda, Nissan and Toyota. Plus, lower retiree benefits.
• Management as-is must go. New faces should be recruited from unrelated industries.
• A new direction for the United Auto Workers, profit sharing or stock grants to all employees and a change in Big Three management culture.
• An end to executive perks such as jets and private dining rooms.
Romney had other items on his list, including making sure shareholders and lenders took it on the chin. "They bet on management and they lost," he said.
As for the government’s role, he said it should invest in basic research in energy, fuel efficiency and advanced materials that would help carmakers produce better vehicles. At the very end of the op-ed, Romney said, "the federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk."
In 2012, about four years after that first op-ed, Romney wrote another one. In it, he wrote "The course I recommended was eventually followed. GM entered managed bankruptcy in June 2009 and exited it a month later in July. The Chrysler timeline was similarly swift."
Romney went on to fault the administration for unfairly rewarding the unions with billions of dollars. "Crony capitalism" he called it.
That criticism aside, Romney is right in that many of the outcomes he listed in 2008 came to pass. The health benefits of retirees were taken completely off the automakers’ books and became the sole responsibility of a trust fund. Labor costs fell dramatically and now are on par with those of Honda, Toyota and other foreign automakers. That trust fund holds a large stake in Chrysler and a much smaller but still significant stake in General Motors. It might not be the form of employee stock ownership Romney had in mind, but it does tie the fate of retired workers to the profits of the company.
What Romney never mentioned in 2008 is what Washington would do to bring about those changes. The outcomes he praises came with a price tag of $23 billion, according to a recent Treasury Department estimate. That’s the gap between the $80 billion the government put into the deal and the $57 billion it expects back.
Romney’s managed bankruptcy would have required massive amounts of private capital, capital that would have been a challenge to raise in the best of times and this took place during a financial meltdown.
Without the infusion of cash from some source, all reports we have read and all observers we have found believe that some liquidation would have followed with much greater disruptions to the entire auto industry and the economy as a whole. However, no one knows for sure what would have been.
Granholm accused Romney of saying "Let Detroit go bankrupt." The line, a popular Democratic talking point, suggested that Romney wanted to let the auto companies go out of business.
That was the headline, which he did not write, and he was not suggesting the auto companies should go belly-up. But he did advocate a managed bankruptcy that would produce carmakers with lower labor costs and products that could compete better in the marketplace.
We rate the statement Half True.
UPDATE: After we published this item, readers alerted us to a CBS TV interview where Romney addressed the "go bankrupt" question and he expanded on some of the things he mentioned in the op-ed about the need for a managed bankruptcy.
Romney stood behind the title of his op-ed, "Let Detroit go bankrupt," but said his main point was to oppose government handouts with no strings attached and no demand that the automakers break away from the costs that were dragging them down. Bankruptcy was the way to make the necessary changes and would not be a liquidation.
Romney did use the words about letting Detroit go bankrupt but his meaning was more nuanced and he emphasized that he was not referring to liquidation. Our ruling does not change.
C-SPAN, Democratic National Convention, September 6, 2012
New York Times, Let Detroit go bankrupt, November 18, 2008
USA Today, Republicans blast auto bailout plan, November 17, 2008
San Francisco Chronicle, Congress debating bailout of Big Three, November 17, 2008
Detroit Free Press, Romney Op-ed: U.S. autos bailout was crony capitalism on a grand scale, February 14, 2012
Email interview with Aaron Bragman, senior analyst, IHS Automotive, September 4, 2012
Email interview with Dan Ikenson, Cato Institute, September 4, 2012
U.S. Department of the Treasury, Troubled Asset Relief Program (TARP): Monthly Report to Congress, April 2012
CBS Early Show, Mitt Romney interview, June 3, 2011
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