Republican presidential candidate Mitt Romney narrowly won the Michigan primary Tuesday.
Romney won despite his supposedly heretical opposition to the bailouts of General Motors and Chrysler.
The Wall Street Journal suggests that Romney’s opposition to the bailouts was not wrong:
By 2007, after decades of deferral, Detroit was making some progress in rationalizing many of its problems, namely the long-term promises it had made to its workers. Gold-plated wages, benefits and work rules put the companies at a cost disadvantage. But the United Auto Workers made concessions on two-tier wages, insurance coverage and retirement plans when the private-equity group Cerebus recapitalized Chrysler and GM divested its health-care costs to a union-run trust fund. Management was investing to revamp product lines with better quality and features.
At the same time, however, government was busy diverting cash flow into cars that Americans don’t want to buy. Thirty years of fuel-economy rules ensured that Detroit couldn’t specialize in its most profitable models—pickups, minivans, SUVs—and had to continue making smaller sedans at high-cost UAW-organized factories that it sold at a loss. Congress and President Bush made this uneconomic mandate much worse with the 2007 energy bill that significantly increased mileage standards.
Then the recession hit, and the Big Three started lobbying for a taxpayer lifeline in summer 2008, after Bear Stearns but before the credit panic. …
Ordinary bankruptcy would have been a trauma, no question. It would have meant pain for laid-off workers and exacerbated the recession, even if the auto makers posed no systemic risk. The taxpayer tab for guaranteed pensions would have been expensive.
But the key point is that Chapter 11 would have provided an orderly workout, giving the auto makers the legal protection to clean up balance sheets, modify contracts and restructure under due process. The steel industry reorganized itself through bankruptcy a little over a decade ago, rationalizing its capacity and labor agreements. American Airlines is the latest legacy carrier to enter bankruptcy, and the planes are still in the air. …
At any rate, even if GM and Chrysler had been liquidated in Chapter 11, Americans could still buy Toyotas, Nissans and other cars that the transplants usually make in the South and Midwest. Those companies might have bought the assets that would have been sold in an economically rational way. All this would have been done under the supervision of a neutral bankruptcy judge or receiver.
That was the real issue for the White House because of its potential damage to union labor. So it proceeded to orchestrate an out-of-court prepackaged bankruptcy. Bond holders would have taken a severe haircut no matter what, but Mr. Obama’s force majeure subordinated their rights to the UAW’s. Even Steve Rattner, who led the auto task force and is its most ardent defender, conceded to the Detroit News in December that “We didn’t ask any active worker to cut his or her pay, we didn’t ask them to sacrifice any of their pension and we maybe could have asked them to do a little bit more.”
Thus the bailout become a tool for less discipline, not more, when Chrysler entered bankruptcy with $8.1 billion in government financing and GM with $30.1 billion. The government became the majority shareholder in the latter and the UAW in the former. Taxpayers still own 26% of GM, and shares will need to rise to $53 from their current $26 to recoup the Bush-Obama investment.
However things shake out, it will be only a fraction of the true costs in precedent and politicized investment. The bailouts signaled that major companies with union labor are too politically big to fail and undermined confidence in the rule of law. More troubling, the conversion of Detroit from an indirect to transparent Washington client continues to distort the auto market.
Last November, Mr. Obama’s enviroteers tightened fuel economy regulations again, jacking them up to 54.5 miles per gallon by 2025—well beyond the standards Congress set in 2007. The auto makers agreed despite their misgivings because as wards of the state they had no political choice. So Chrysler, GM and Ford will still be forced to make cars that dealers struggle to sell profitably, only many more of them.
These companies are not run by morons. They make small cars profitably overseas and are among the biggest-selling brands in China and Latin America. In the U.S. by contrast, cars are a minority of the top 20 models, while Ford and Chevy pickups are among the top three sellers year after year. But if American consumers don’t want to sacrifice horsepower and size for fuel efficiency, Washington won’t take no for an answer. The new Obama budget includes a $10,000 tax credit for consumers to buy the green cars that they otherwise wouldn’t. Will mandated purchases be next?
Mandated purchases? What a silly idea … as silly as the government’s buying up perfectly serviceable cars to be permanently taken off the roads. The feds wouldn’t do anything as stupid and wasteful as Cash for Clunkers, right? Right?
Michelle Malkin adds that what you hear from the White House about the shared sacrifice of autoworkers is false:
Bondholders standing up for their property and contractual rights got shortchanged and demonized personally by the president. Dealers and suppliers faced closures based on political connections and lobbying clout, rather than neutral efficiency evaluations. And as I first reported in September 2010, in the rush to nationalize the auto industry and avoid contested court termination proceedings, the White House auto team schemed with Big Labor bosses to preserve UAW members’ costly pension funds by shafting their nonunion counterparts.
These forgotten nonunion pensioners (who worked for the Delphi/GM auto parts company) lost all of their health and life insurance benefits. Hailing from the economically devastated Rust Belt — northeast Ohio, Michigan and neighboring states — the Delphi workers had devoted decades of their lives as secretaries, technicians, engineers and sales employees.
Some have watched up to 70 percent of their pensions vanish. They’ve banded together to seek justice in court and on Capitol Hill under the banner of the Delphi Salaried Retiree Association.
Through two costly years of litigation and investigation, the Delphi workers have exposed how the stacked White House Auto Task Force schemed with union bosses to “cherry pick” (one Obama official’s own words) which financial obligations the new Government Motors company would assume and which they would abandon based on their political expedience. Obama’s own former auto czar Steve Rattner admitted in his recent memoir that “attacking the union’s sacred cow” could “jeopardize” the auto bailout deal. …
One union’s government-subsidized, government-manipulated “success story” is the rest of the workforce’s nightmare.
Not to mention taxpayers’ collective nightmare, since the federal government will be out at least $23.6 billion.
And how do taxpayers feel about the bailouts? According to a National Journal poll, 55 percent of those surveyed believe “these companies should have been allowed to succeed or fail on their own.”