Mitt Romney Deserves No Credit for Auto Revival: Fmr. Auto Czar!

It's been nearly
three years since General Motors and Chrysler went into bankruptcy
protection, with the financial assistance of the U.S. government. But
even as the financial crisis recedes into the distance, the rescue
efforts remain a hot political topic, says Steven Rattner, the former
investment banker who helped direct the Obama administration's auto
rescue efforts.

As auto sales and production
continue to climb, the Obama administration has been quick to trumpet
its support for GM and Chrysler and to claim credit for the revival of
the companies, and of the entire market. Meanwhile, Mitt Romney, a
critic of the bailouts, has recently taken credit for Detroit's revival. And in a Wall Street Journal op-ed this week, Republican political operative compared the Obama administration's efforts to the work of private equity firms like Bain that it has condemned.

Rattner isn't convinced Romney deserves much credit for the bailouts.
"In fairness to him, he did propose a form of managed bankruptcy, and
got a fair amount of it right in 2008," Rattner said. But Romney then
walked away from that support in 2009 "and attacked what he did, and
said Obama had made a mistake."

No politician likes to be on the
wrong side of a turnaround story. Neither, apparently, does the public.
Rattner notes that polls from the spring 2009 until very recently showed
the auto rescues were unpopular. When Romney was campaigning in the
Michigan primary earlier this year, the bailouts were unpopular even
among Michigan Republicans. Rattner argues that Romney is now trying to
associate himself with the turnaround stories at GM and Chrysler because
the rescues have been gaining in popularity on a nationwide basis. A Harris poll
from April found that 45 percent of Americans said the bailouts helped
the economy, while 29 percent said the hurt the economy. That's a marked
change from 2009, when Harris says 69 percent of Americans opposed the auto bailouts.

Rattner also rejects the argument, made in Rove's Wall Street Journal column,
that the bailouts were a method of rewarding political allies like the
United Auto Workers. "Think about the capital structure," Rattner said.
"The people at the bottom, the shareholders, got wiped out." Unsecured
creditors — i.e. bondholders in the case of GM — took a very big
haircut. For its part, the UAW had massive claims against both companies
for health care benefits that had been promised contractually and that
the two companies hadn't bothered to fund adequately in the years when
they were profitable. Rattner argues that the equity stakes they
received in the company were given in exchange for having relinquished
their health-care claims against the company, and for making significant
concessions on labor costs. "They took a big haircut," Rattner said.

The U.S. closed out its
'investment' in Chrysler at a loss when Fiat took full control. But it
still owns a large stake in General Motors. And until those shares are
finally sold, the entanglement between Washington and Detroit will
continue to be a political issue. GM would certainly prefer that the
U.S. Treasury Department divest its stake in GM immediately, even if it
would lead to a large loss for taxpayers. But Rattner advises patience.
"It typically takes five to eight years to divest a stake as large as
GM." Even given a slower divestment schedule, Rattner believes the U.S.
could wind up losing $15 billion on the auto rescues.

In the scheme of the overall
bailouts and stimulus, that loss will wind up being a rounding error.
But given the politicization of the auto industry in recent years, we
should expect the GM and Chrysler rescue efforts to play a big role in
this fall's presidential campaign.