Every day now the
Dayton Daily News has an article on the significance of the auto bailout to the saving of the Ohio auto industry and the outcome of the 2012 election. So today the article was written by Phillip Elliot and entitled "Auto Bailout May Hold Ohio Key," (p. A1, A10).
There is no question that the 850,000 workers tied to the auto industry in Ohio are grateful for what the Obama administration did to shore up General Motors in 2009. And Obama knows this, for he continues to hammer Romney on the later's New York Times Op-Ed Piece "Let Detroit Go Bankrupt." But in a world of simplified campaign rhetoric aimed at winning emotions rather than reasoned thinking, Romney's assertions have been distorted and demonized.
What did Romney actually say?:
FROM NYT:
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.
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.
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.
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.”
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.
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.
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.
Note the arguments in this essay -- they are far more brilliant than what Obama wants American to think of Romney's views on this matter.
A) Romney is visioning about the long term viability and future of the U.S. and the auto industry. It is about viability a decade from now, not year to year. Yes, we the taxpayers have put GM on life support but not life much beyond the next election. Labor costs remain high, business at GM is still far more like the old usual practices, a badly needed desperation has been avoided, but complacency has not. Labor owns a good chunk of GM. Government has kept people working, no different in style than what is happening currently in France where a socialist prime minster is saving 8,000 Peugeot jobs.
B) The last two sentences of Romney's essay are key. The federal government has a role in a managed bankruptcy. It will provide guarantees for financing.
In sum, what the election will decide is what economic policy path the U.S. will follow during the next four years, and probably well beyond. If you believe that capitalism is the best way to create prosperity and economic growth, then Romney is your man. If you think that larger government, more powerful unions, social intervention is the right course, then Obama is your choice. In the end, America will get what it deserves.
