I am a son of Detroit. I was born in Harper Hospital and lived in the city until my family moved to Oakland County. I grew up drinking Vernors and watching ballgames at Michigan & Trumbull. Cars got in my bones early. And not just any cars, American cars. When the President of American Motors died suddenly in 1954, my dad, George Romney, was asked to take his place. I was seven and got my love of cars and chrome and fins and roaring motors from him. I grew up around the industry and watched it flourish. Years later, I watched with sadness as it floundered.
Three years ago, in the midst of an economic crisis, a newly elected President Obama stepped in with a bailout for the auto industry. The indisputable good news is that Chrysler and General Motors are still in business. The equally indisputable bad news is that all the defects in President Obama's management of the American economy are evident in what he did.
Instead of doing the right thing and standing up to union bosses, President Obama rewarded them. A labor union that had contributed millions to Democrats and his election campaign was granted an ownership share of Chrysler and a major stake in GM, two flagships of the industry. The U.S. Department of Treasury, i.e., American taxpayers, was asked to become a majority stockholder of GM. And a politically connected and ethically challenged Obama-campaign contributor, the financier Steven Rattner, was asked to preside over all this as auto czar.
This was crony capitalism on a grand scale. The President tells us that without his intervention things in Detroit would be worse. I believe that without his intervention things there would be better.
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.
In the case of Chrysler and GM, that was precisely what the companies needed. Both were saddled with an accumulation of labor, pension, and real estate costs that made them unsustainable. Health and retirement benefits alone amounted to an extra $2,000 baked into the price of every car they produced. Shorn of those excess costs, and shorn of the bungling management that had driven them into a deep rut, they could reemerge as vibrant and competitive companies. Ultimately, that is what happened. 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.
But something else happened along the way that was truly egregious. Before the companies were allowed to enter and exit bankruptcy, the U.S. government swept in with an $85 billion sweetheart deal disguised as a rescue plan. By the spring of 2009, instead of the free market doing what it does best, we got a major taste of crony capitalism, Obama-style.
Thus, the outcome of the managed bankruptcy proceedings was dictated by the terms of the bailout. Chrysler's "secured creditors," who in the normal course of affairs should have been first in line for compensation, were given short shrift, while at the same time, the UAWs' union-boss-controlled trust fund received a 55 percent stake in the firm. The pensions of union workers and retirees at Delphi, GM's part supplier, were left untouched, while some 21,000 non-union salaried employees saw their pensions slashed and lost their life and health insurance. And so on and so forth across the industry. While a lot of workers and investors got the short end of the stick, Obama's union allies--and his major campaign contributors--reaped reward upon reward, all on the taxpayer's dime.
"You never want a serious crisis to go to waste," is what Rahm Emanuel, Obama's chief of staff, said as the economy went into free-fall. The auto-bailout is a case study of Emanuel's maxim in operation. American taxpayers have been left on the hook for billions in order to benefit unions and the union bosses who contributed millions to Barack Obama's election campaign.
Such a state of affairs is intolerable, and as president I would not tolerate it. The Obama administration needs to act now to divest itself of its ownership position in GM. The shares need to be sold in a responsible fashion and the proceeds turned over to the nation's taxpayers. We should not be back on a road like the one that brought us Freddie Mac and the housing crisis. It is a road with endless hazards. It is not the American way of making cars.
The dream of the Motor City is and always has been one of ideas, innovation, enterprise, and opportunity. It started with Henry Ford and continued with visionaries like William Durant, Walter Chrysler, and the Dodge Brothers. These giants never envisioned a role for government in their business, but relied on the hard work and commitment of private individuals. Their dream is alive in all of us who have ever called Detroit home. And with a Detroiter in the White House, that dream can be realized once again.