Friday, November 2, 2012

Let Detroit Go Bankrupt

Detroit has the highest poverty rate in the U.S., nearly half of its street lights don't work, and Romney thinks the solution is to let the city go bankrupt.

by Mitt Romney, via The New York Times:

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 (It's revealing that Romney characterizes our nation's elderly retirees, who have served the country with decades of labor, as "burdens")...Detroit needs a turnaround, not a check. I love cars, American cars. I was born in Detroit, the son of an auto chief executive...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. (According to this article, guest workers at Toyota are frequently stripped of passports and forced to work 16 hour days, 7 days a week, for half the legal minimum wage.) Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign 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.”.... The federal government should also rectify the imbedded tax penalties that favor foreign carmakers. (Romney himself has benefited from foreign tax loopholes by transferring assets from Bain Capital into offshore bank accounts in the Cayman Islands)...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.