October 27, 2012
Romney Assesses the Motor Vehicle Sector
With an update (in response to comments alleging media bias) from the leftist publication, Wall Street Journal.
In a speech Thursday, Governor Romney stated:
"...one of the great manufacturers in this state Jeep -- now owned by the Italians -- is thinking of moving all production to China. I will fight for every good job in America. I'm going to fight to make sure trade is fair, and if it's fair America will win."
This statement is incorrect.
Here are two figures with actual data from the most recent GDP release, regarding motor vehicle production and sales of domestic vehicles, and exports.
Figure 1: US motor vehicle output (blue) and sales (red), in bn. Ch.05$. Dashed line at 2008Q4 (November 2008), "Romney: Let Detroit go bankrupt". NBER defined recession dates shaded gray. Source: BEA, Table 7.2.6U. Real Motor Vehicle Output, October 26, 2012 release, and NBER.
Figure 2: Log US motor vehicle exports (blue) and US goods exports (red), in bn. Ch.05$, both normalized to 2009Q2=0. Dashed line at 2008Q4 (November 2008), "Romney: Let Detroit go bankrupt".NBER defined recession dates shaded gray. Source: BEA, Table 7.2.6U. Real Motor Vehicle Output, and 1.1.6. Real Gross Domestic Product, October 26, 2012 release, and NBER.
Note that in the wake of government assistance (including direct aid from TARP), production, sales, and exports have rebounded sharply.
Update, 4:15PM Pacific: From Detroit Free Press, "Romney camp silent on his Jeep-to-China gaffe: Production move refuted by Chrysler ":
If Mitt Romney knows Chrysler will keep making Jeeps in Detroit and Toledo, neither he nor his staffers acknowledged it Friday.
A spokesman for the Republican presidential candidate declined to answer questions about the candidate's incorrect reading of a news report that Chrysler was considering moving all Jeep production to China.
Romney's comments came late Thursday in Defiance, Ohio, just hours after the Free Press reported that 1,100 new Chrysler workers will help boost production of the Jeep Grand Cherokee and Dodge Durango SUVs in Detroit beginning next week.
Also, Chrysler is investing $500 million to upgrade its plant in Toledo to build the replacement for the Jeep Liberty and is in the process of hiring 1,105 additional workers that are expected to start next fall.
Update, Sunday 12:20PM Pacific: In response to comments from Rick Stryker asserting media bias, I will appeal to a different source. From WSJ:
The new Romney ad, which features nostalgic images of people enjoying rides in their cars, and then autos getting crushed at a junkyard, states that Mr. Obama “took GM and Chrysler into bankruptcy, and sold Chrysler to Italians who are going to build Jeeps in China.” (You can see it here.)
Mr. Romney, in Defiance, Ohio, last week, told supporters: “One of the great manufacturers in this state, Jeep, now owned by the Italians, is thinking of moving all production to China. I will fight for every good job in America.”
Defiance is a manufacturing town in northwest Ohio not far from Toledo, which is home to a large Jeep assembly plant that Chrysler is spending $500 million to retool for a new Jeep Liberty model.
Shortly before Mr. Romney spoke, Chrysler’s chief spokesman, Gualberto Ranieri, had written on the company’s blog that Chrysler had no intention of shifting U.S. Jeep production to China.
China is the world’s largest auto market and and the second-largest for the Jeep brand, behind North America. Fiat and Chrysler executives have been signaling their desire to revive Jeep production in China for months—while at the same time hiring more workers at Jeep factories in Detroit and Toledo to meet robust demand for the Wrangler and Grand Cherokee sport utility vehicles.
Chrysler employs about 1,929 workers at the Toledo plant and 3,075 at the Jefferson North Jeep assembly plant in Detroit. The company has announced plans to hire an additional 1,100 workers in Detroit. In his online statement, Mr. Ranieri was responding not to the Romney campaign ads or Mr. Romney’s comments, but to blogs that had misinterpreted a Bloomberg News story about the company’s plans to build Jeeps in China.
“Despite clear and accurate reporting,” Mr. Ranieri wrote, “the take has given birth to a number of stories making readers believe that Chrysler plans to shift all Jeep production to China from North America, and therefore idle assembly lines and U.S. workforce. It is a leap that would be difficult even for professional circus acrobats.
United Auto Workers union President Bob King, whose union represents workers at Chrysler’s Ohio factories, said Mr. Romney should “take personal responsibility for perpetuating a deplorable and false statement about Chrysler, a U.S. automaker that has bounced back in a big way after bankruptcy.”
So far, the Romney campaign hasn’t issued a public statement on the flap.
See also Detroit Free Press. If I may be so bold, it seems to me that the bottom line is the Romney campaign (specifically Governor Romney) made a factual error, and has not issued a retraction of the earlier mistaken assertion. Which is to me, frankly, unsurprising.
Update, 9:10AM Pacific 10/30: Bloomerg updates. Still no retraction/correction.
Update, 9:10PM Pacific: WaPo Factchecker gives Romney ad on Jeep 4 pinocchios.
Posted by Menzie Chinn at October 27, 2012 11:50 AMdigg this | reddit
You mean this GM Jun 1, 2009 filing for bankruptcy?
After years of losses, the troubled automaker is forced into bankruptcy. GM is set to close a dozen facilities and cut more than 20,000 jobs...In the end, even $19.4 billion in federal help wasn't enough to keep the nation's largest automaker out of bankruptcy. The government will pour another $30 billion into GM to fund operations during its reorganization.
So both candidates supported and in Obama's case "allowed" GM and Chrysler to go bankrupt. Given the fact that banks had no money to lend, the government would have had to step in no matter who was president. The difference was how Obama ignored existing bankruptcy law and placed unions ahead of nonunion workers and bondholders.
From the Columbus Dispatch:
President George W. Bush helped to secure a $17 billion loan for the companies in December 2008. Months later, with the two companies about to run out of money again, newly inaugurated President Barack Obama put together the $80 billion rescue package...
Usually, bondholders would be first in line. In this case, the bondholders, including many pension funds, fared worse than they would have otherwise...
Non-union employees at the companies did not get the same deal, and saw their benefits reduced much more than their union counterparts.
Posted by: tj at October 27, 2012 01:13 PM
tj: I like how you rewrote history. Romney stated explicitly, in print (I still remember reading the op-ed in hard copy) he would not provide any direct aid; just loan guarantees. You might be right, however, that the infinitely malleable Governor Romney would have changed his mind when confronted by conditions (that he very well should have understood would have likely prevailed in the future, when he wrote the op-ed in November 2008 after the collapse of Lehman).
Posted by: Menzie Chinn at October 27, 2012 01:27 PM
Do you see your role at this blog as informative or an opportunity to take to promote your politics?
Just a few points.
Did Romney write say the words "Let Detroit go bankrupt" as your link implies. No. Those words come from the NYT headline it assigned to the Romney piece. Although almost impossible to deem from your posts, did GM and Chrysler go through bankruptcy. Yes. After the bailout and with more bailout.
Did you even read the Romney piece? No where in the piece did he Romney suggest that he thought GM and Chrysler should die. Nor did he suggest that the government should have no role in a manage bankruptcy. I suggest you read the second paragraph and the second to last paragraph of the NYT piece.
I could comment further on your politcal slant, but will just end it with facts you are not including in your post. You promote the fact that sa=les and production are up but neglect to put that in the context that GM market share is continuing to drop. Which if you read the Romney piece is exactly what Romney predicted if the government chose the bailout route rather that a more traditional manage bankruptcy. For you benefit I will quote from the piece.
"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."
Posted by: Ed Hanson at October 27, 2012 01:44 PM
Ed Hanson and tj
What universe do you live in? Everyone knew that GM and Chrysler would have to go through some kind of bankruptcy. That was never in doubt. The question was "what kind of bankruptcy?" At the time there were no financial takers. No financial house was willing to finance a reorganization. The government even asked (begged???) Bain Capital to step up to the plate. They refused. There were only two choices. The first choice was to allow GM and Chrysler to go into liquidation via chapter 7. The second choice was to have the government intervene and provide the bailout financing needed to cover reorganzation. Romney was recommending the first option. That is how everyone at the time understood his proposal. That is also how most of the conservatives on this blog understood his proposal. Back then several conservatives (and I believe that included you too, tj, but definitely included Bruce Hall) argued that liquidation would not be so catastrophic because Ford and other car manufacturers would pick up the slack with increased sales. As Menzie said, you are trying t rewrite history.
And of course, Romney still botched the whole Jeep story.
Posted by: 2slugbaits at October 27, 2012 03:33 PM
2slug... what I have written versus what you believe I have said:
... and many more.
The issue was not liquidation... it was a managed bankruptcy versus a government takeover and destruction of contract law. But, hey, what's contract law when we're talking about His Obamaness. What's the right of bondholders? Why the preference for the pensions of UAW members versus salaried employees?
Face it, 2slug, the GM takeover was political... not economics.
Posted by: Bruce Hall at October 27, 2012 04:15 PM
Ed Hanson: I don't recall asserting that Romney wanted the firms to die. I merely recounted (1) what Governor Romney (erroneously) stated, and (2) what BEA data indicates. If you are irritated, then you should look to yourself for the source.
By the way, take a look at this article.
Posted by: Menzie Chinn at October 27, 2012 04:31 PM
You know Bruce Hall, it doesn't matter because it was done, the firms are now fine, and the government will make a profit on what it did. How about that huh? No one listened to you! And I've been reading this blog for a long time, and I wonder how many time it takes for the people who run the blog to correct you, the people who post here to disagree with you, and the world to keep doing the exact opposite of whatever you espouse before you get the hint and just either go silent or re-evaluate your positions?
This current discussion is a great example. You were wrong. Period. It doesn't matter if it was political or economic or both (which of course it is because nothing is strictly economic when the government gets involved). You were wrong. The government went ahead and did what it did and now the companies have been righted. So you can scream in the dark all you want but it's the reason Romney is losing Ohio. And people like you aren't helping him.
Posted by: econimonium at October 27, 2012 04:45 PM
Everyone likes to attribute super powers to the President in terms of either fixing the economy or ruining it.
The financial bailout kept deflation at bay. After that the economy did what economies do after major debt crises; it stagnated while banks fixed their debt to capital ratios by reducing loans and raising capital, and people reduced their debt loads by reducting consumption to pay down debt or through defaulting on loans.
No matter who is president the economy will continue its slow path to recovery and the partisans of that president will crow and take credit.
The election is our quadrennial descent into madness and is quite entertaining to those of us who think the President is more a figurehead than a real change agent.
Posted by: colonelmoore at October 27, 2012 07:32 PM
The fact of the Romney misstatement or distortion is that Chrysler announced it was considering opening and re-opening production in China. To serve China. Because it's a really big market. Romney took that and said Chrysler was moving production out of the US. It wasn't a gaffe from nowhere. It was either a lazy reading of a Chrysler statement or a stupid intentional distortion. Either speaks poorly of Romney.
Posted by: jonathan at October 27, 2012 07:58 PM
The CBS story you link to reads like it was written by David Axelrod rather than by objective journalists. The Obama administration supporters in the media, in this case represented by CBS news, are attempting help the Obama campaign in Ohio by essentially becoming surrogate campaign staff who provide just-in-time refutation of Romney's more damaging arguments.
CBS news attempted to claim Romney's statement was false because 1)the Bloomberg article said later on that "Manley referred to adding Jeep production sites rather than shifting output from North America to China;" and 2) that Chrysler vehemently denied Romney's statement. But this is ridiculous.
Romney's statement was based on this Bloomberg article.
Romney said that he read that "...one of the great manufacturers in this state Jeep -- now owned by the Italians -- is thinking of moving all production to China.
But that's exactly how Bloomberg titled the URL to the story: "fiat-says-china-may-build-all-jeep-models-as-suv-demand-climbs.html"
Here's the opening line of the article:
"Fiat SpA (F), majority owner of Chrysler Group LLC, plans to return Jeep output to China and may eventually make all of its models in that country, according to the head of both automakers’ operations in the region." Later on in the article, that same person also said, “We’re reviewing the opportunities within existing capacity” as well as “should we be localizing the entire Jeep portfolio or some of the Jeep portfolio.”
The article is pretty straightforwardly saying that Fiat is looking to expand production in China now to meet Chinese demand and is considering eventually putting all Jeep production in China, just as Romney said.
Not surprisingly, Chrysler walked their interview back aggressively when they heard that it was being used by Romney. Chrysler's management is tied in with the Obama administration and they have a mutual interest here.
Instead of investigating the story to find out what was really going on at Fiat, the shills at CBS news took this walkback at face value because they understand the importance of Ohio for the Democrat reelection effort. Ohio's auto workers really do deserve better from the media.
Posted by: Rick Stryker at October 27, 2012 10:50 PM
Finally, this blog has evolved into a left-side promotion gig.
And all that effort only for the choice between an insane man vs. a goldman sachs talking head.
Posted by: Johannes at October 28, 2012 03:51 AM
If Romney had asked me I would have told him not to believe any Bloomberg report. Even though Bloomberg quotes Mike Manley, chief operating officer of Fiat and Chrysler in Asia, you just shouldn't believe your lying eyes.
Now let's see, earlier the Detroit News reported, "The Bloomberg story, though accurate, "has given birth to a number of stories making readers believe that Chrysler plans to shift all Jeep production to China from North America, and therefore idle assembly lines and U.S. work force. It is a leap that would be difficult even for professional circus acrobats," Chrysler spokesman Gualberto Ranieri said. So Romney was quoting Bloomberg correctly but Chrysler is now walking the comments back.
So was it just those notorious right-wing rags Bloomberg and the Detroit news. No another right-wing publication AutoGuide.com reported the same thing writing, "Weakness in the European auto market lead to slow sales for Chrysler but strong demand in China buoyed the brand. In fact, business in China is good enough that Chrysler might transplant its manufacturing operations."
Menzie, your posts are so well researched you should demand that the Obama campaign give you a raise.
But then the Obama administration was too busy watching real time as terrorists killed Ambassador Stevens in Benghazi. I am curious, where are the photo op pictures of Obama watching the video screen with his advisors?
Oh that's right they are a little confused. They blamed an unknown youtube video even having the producer arrested. They blamed the intelligence community even though they were getting real time updates from on-site and from drones. Then they blamed the CIA for giving a "stand down" order but, the CIA released a statement saying "no one at any level in the CIA" refused help. So that puts the "stand down" order in the White House. Now Obama and his minions have adopted Incompetence as a foreign policy. Wow, brilliant!
Maybe you can tell me from your inside position in the Obama campaign, which is it? Is Obama ignorant, or incompetent, or both? His people can't seem to make up their minds claiming both.
Posted by: Ricardo at October 28, 2012 07:04 AM
econimonium: You know Bruce Hall, it doesn't matter because it was done, the firms are now fine, and the government will make a profit on what it did.
Yes, GM is doing fine... or not:
Yes, the government was repaid... or not:
But I appreciate your effort to make up "facts" in support of the President. Glad to see he's not alone in that respect.
Posted by: Bruce Hall at October 28, 2012 08:10 AM
Here is a comment from Chrysler itself from the Detroit News:
Earlier Thursday, Chrysler had rebutted blog reports that had incorrectly interpreted a Bloomberg News story that Chrysler was considering building Jeep vehicles in China for Chinese buyers.
"Let's set the record straight: Jeep has no intention of shifting production of its Jeep models out of North America to China," wrote Gualberto Ranieri, Chrysler's vice president of communications, who said the misinterpretation "is a leap that would be difficult even for professional circus acrobats."
Now one can argue that Romney misinterpreted a story but the clarification is out there, in public from the auto company itself.
And how does Romney follow up: by running ads in Ohio that says Chrysler is planning to build Jeeps in China. Per the News, the ad says: "Obama took GM and Chrysler into bankruptcy and sold Chrysler to Italians who are going to build Jeeps in China."
Posted by: jonathan at October 28, 2012 08:42 AM
Rick Stryker: Well, then, refer to this article from the Tennessean, entitled "Fact check: Romney repeats false claim of Jeep outsourcing to China", or Detroit News, or UPI. The error is larger than I originally thought because Romney said:
"I saw a story today that one of the great manufacturers in this state, Jeep -- now owned by the Italians -- is thinking of moving all production to China," Romney said.
Where Romney got "all" production moving to China from the Bloomberg article is beyond me.
Posted by: Menzie Chinn at October 28, 2012 09:15 AM
Here's the original Bloombery story:
Now, I think it rather unseemly for a free market candidate to attack outsourcing, as this reflects a response to comparative advantage. This is also true for the President, who should know better but apparently doesn't.
GM is what, perhaps the largest out-sourcer in the country? And there's a reason for that: that's where the customers are. Let's get over it.
On the other hand, our comparative advantage is in finance. Unforunately, we seem to be out-sourcing that, too.
Posted by: Steven Kopits at October 28, 2012 09:39 AM
Steven Kopits Here's the original Bloombery story:
Isn't Bloombery a cartoon strip? :->
On the other hand, our comparative advantage is in finance.
I don't know if that's true or not. We might have an absolute advantage, but that does not mean we have a comparative advantage. The two are very different concepts.
Bruce Hall Lots of links. Not a one of them have anything to do with the issue of I was talking about. The Romney op-ed piece was either about liquidation or it was about nothing. And why should any newspaper publish an op-ed piece about nothing? Outside financing simply was not available. There were two and ONLY two options on the table. The first option was a government bailout along the lines of what Bush and Obama ultimately did. The second option was liquidation. If Romney thought he was talking about some third option, then he should have said so at the time. You and several other conservatives on this blog did not think liquidation would be catastrophic.
Under normal economic circumstances I would have agreed with letting GM and Chrysler go through liquidation. GM was bloated and produced some pretty crappy cars. But allowing GM and Chrysler to go through liquidation in early 2009 would have been a macroeconomic calamity. The reason for supporting the bailout was entirely macroeconomic and a one-time deal only. If Romney had written that op-ed two years earlier, then he would have had a good point.
Posted by: 2slugbaits at October 28, 2012 10:20 AM
Johannes: Yes, I do believe that to someone who writes (7/15/2012):
This climate-nonsense stuff was pushed by Al Gore, this guy has already cashed out and lives in St. Barth.
Anything I say would pretty much sound
like a "left side promotion gig".
Posted by: Menzie Chinn at October 28, 2012 10:48 AM
I find this part of the story more troubling than what Romney would have done.
Usually, bondholders would be first in line. In this case, the bondholders, including many pension funds, fared worse than they would have otherwise...
Non-union employees at the companies did not get the same deal, and saw their benefits reduced much more than their union counterparts.
Obama ignored existing U.S. law. Wait until he doesn't have re-election to hold him back. As he said to Medvedev, "This is my last election ... After my election I have more flexibility"
Posted by: tj at October 28, 2012 01:46 PM
tj: I'm sorry, please clarify what specific parts of the U.S.C. were violated. There is a lot riding on your use of the word "normally". I mean, normally, we see more than a year and a half of tax returns from candidates, but it's not illegal to keep them secret. (Actually, we do not even have a single complete return from Governor Romney.)
Posted by: Menzie Chinn at October 28, 2012 02:51 PM
tj: "Obama ignored existing U.S. law."
Perhaps you didn't notice but the bankruptcy was managed and approved by a Federal bankruptcy judge, reviewed by a Federal Appeals court, and by the U.S. Supreme Court. None one single judge, neither Scalia, Alito, Roberts nor Thomas saw grounds to issue a stay on the bankruptcy, so I guess everyone must be in on the conspiracy and we should defer to your knowledge of the law instead of the Supreme Court.
Posted by: Joseph at October 28, 2012 03:49 PM
I still see media bias here. The WSJ article is just making the same points as all the other articles and is interpreting the story in a way that is most damaging to Romney.
People commonly assume that the WSJ has conservative news coverage just because the editorial page is conservative. However, I've never been able to distinguish the WSJ news from the NYT news. In fact, this study linked below finds that the WSJ news (not editorial page) exhibits the most liberal bias of all news outlets studied, with more liberal bias than the NYT, NPR morning edition, the Washington Post, Time, Newsweek, and NBC.
If the WSJ article were objective, it might have noted that the Bloomberg article was ambiguous, so that it wasn't clear whether moving all production to China meant all jeep production worldwide or all Jeep production sold in China. The article might then have noted Chrysler's clarification.
But then, they might also have reported that the Grand Cherokee, Wrangler, Patriot and Compass are currently imported into China but that Fiat and Chrysler have not been able to expand sales without returning to local Jeep production in China. But when Manley said to Bloomberg “We’re reviewing the opportunities within existing capacity” as well as “should we be localizing the entire Jeep portfolio or some of the Jeep portfolio" he means that they are considering whether they should continue to import Jeeps and build up local production or stop importing Jeeps and produce all Jeeps intended for the Chinese consumer in China. But if they go the latter route, that may cut jobs at Ohio factories that are exporting jeeps to China, or at the very least not expand jobs when job expansion is desperately needed. An enterprising reporter from the WSJ or CBS might have asked Chrysler to square their clarifying statement with that observation.
Of course, no enterprising asked that question because it might have helped Romney.
Posted by: Rick Stryker at October 28, 2012 09:06 PM
You "implied strongly" that I supported the liquidation of GM which I did not. I supported a normal bankruptcy in which normal contract law was protected from the likes of the UAW and government bureaucrats.
I believe there is a difference.
Regardless, GM is still struggling with a management culture that brought it down in the first place... compounded by government demands that millions... billions... of dollars be wasted on products like the Volt which has virtually no market outside of the government itself.
Posted by: Bruce Hall at October 29, 2012 05:21 AM
The Treasury uses TARP funds to take a junior position in Chrysler and then forces senior creditors to take the losses. The Supreme Court did not rule on the legality of Treasury's move, but took the position that the sale had closed, so the case was moot. The Supreme Court VACATED the lower court's ruling, implying it was incorrect and cannot be used as precedent.
Another "minor" point is that the Emergency Economic Stabilization Act passed by Congress, only allows TARP funds to be used for financial insitutions, not to bailout auto companies. One outcome is that Chysler is sold to Fiat and then the left howls when Romeny brings up the fact that Jeep might move production to Italy? WOW! Who saw that coming? (sarc).
So, we have a case where the federal government goes against standing bankruptcy law and hand selects winners and losers.
Notice the pattern. Two of Obama's biggest sources of campaign funds in 2008, Green Energy and Unions, both received extraordinary preference and handouts in various forms.
the United States Department of the Treasury
orchestrates a sale under 11 U.S.C. § 363(b) to
circumvent the important creditor protections provided by the absolute priority rule of the Bankruptcy Code, thereby stripping a senior class of secured creditors of their first priority lien interests.
By utilizing Section 363 in this
manner, Chrysler sought to avoid the “absolute priority rule,” codified at 11 U.S.C. § 1129(b)(1), which provides that a court should not approve a bankruptcy plan unless it is “fair and equitable” to all classes of creditors, including dissenting classes of creditors.
Petitioners are comprised of the Indiana State
Police Pension Trust and the Indiana State Teachers Retirement Fund
Notably, in exercising its discretion not
to issue the stay, the Court emphasized that “[a] denial of a stay is not a decision on the merits of the underlying legal issues.”
Tellingly, in its order vacating the opinion of the Second Circuit, the Supreme Court cited United States v. Munsingwear, 340 U.S. 36 (1950), in which the Court announced that vacactur of an intermediate appellate opinion in a case that subsequently becomes moot “clears the path for future relitigation of the issues between the parties and eliminates a judgment, review of which was prevented through happenstance.”
Id. at 40. This technique, the Munsingwear Court went on to say, “is commonly utilized in precisely this situation to prevent a judgment, unreviewable because of mootness, from spawning any legal consequences.”
Id. at 42.
Bolded type and more here - http://www.cato.org/pubs/articles/shapiro-WLF-Chrysler-Bankruptcy.pdf
and here -
Posted by: tj at October 29, 2012 07:07 AM
Rick Stryker: Well, my guess of what you consider "balanced" is FoxNews. I've been reading the WSJ for about twenty five years (as I often assign WSJ or NYT to my students), and I would've concurred with your assessment 20 years ago. Post-Murdoch, I noticed a change, and would no longer concur.
By the way, the paper you cite is eight years old.
Posted by: Menzie Chinn at October 29, 2012 08:43 AM
It's pretty remarkable. Romney is going to protect Medicare and Social Security! He is going to protect the auto industry from moving to China! What's next? He's going to protect a woman's right to choose??
OK so I am totally on board with Romney winning this election because I think if Romney's scortched earth campaign is successful the US deserves to elect a bald-faced liar as commander-in-chief. And I will get some relief from having to talk up support for Obama's center-right policies.
Plus I get a 20% tax rate cut!
Posted by: randomworker at October 29, 2012 10:10 AM
Bloomberg does it again - or is it Fiat?
Memo to Mitt Romney: Ignore anything printed in Bloomberg.
To counter the severe slump in European sales, Marchionne is considering building Chrysler models in Italy, including Jeeps, for export to North America. The Italian government is evaluating tax rebates on export goods to help Fiat. Marchionne may announce details of his plan as soon as Oct. 30, the people said.
Posted by: Ricardo at October 29, 2012 10:22 AM
Obama administration gave a significant part of Chrysler to Italian Fiat as a gift (courtesy and paid for by US taxpayers), and now Fiat has a gall of moving production overseas? Who would've thought they would be ungrateful?
Nevertheless, go team Obama! There are still more American companies that may need taxpayer funded bailouts in the years to come.
Posted by: B Turnbull at October 29, 2012 11:08 AM
Ricardo: Yes, much better to manufacture "facts". I note that Governor Romney has yet to issue a retraction.
Posted by: Menzie Chinn at October 29, 2012 11:33 AM
Do the execs consider Mexico to be part of "North America?"
Posted by: Robert Hurst at October 29, 2012 01:41 PM
Why should he offer a retraction when all he was doing is repeating what Bloomberg reported Fiat management is saying? Romney cannot be responsible for stupid remarks by Fiat management. I have a feeling that David Axelrod told Fiat to retract their statement because it reflects badly on Obama before the election. Of course Obama will have more flexibility after the election. I wonder if Mr. Putin sees the handwriting on the wall that Mr. Obama will have a lot more flexibility, but he will be dealing with President Romney.
But then Benghazi shows us what happens with Obama's flexibility doesn't it?
Posted by: Ricardo at October 29, 2012 02:17 PM
Bruce Hall I supported a normal bankruptcy in which normal contract law was protected from the likes of the UAW and government bureaucrats.
It seems you have completely missed the whole point of the discussion. Normal bankruptcy was not an option. Two choices and two choices ONLY. The first choice was a long drawn out liquidation process that would have had a snowball effect on the macroeconomy. The other choice was something along the lines of what Bush and Obama ended up doing; i.e., government financing of a reorganization in exchange for some control and unions giving up significant benefits. Imagining other options is just fanciful.
Posted by: 2slugbaits at October 29, 2012 03:40 PM
I'm teaching a senior seminar on macro so follow the blog, and was surprised to see the topic shift to my baliwick, auto industry topics.
First, Beijing Jeep was one of two initial joint ventures in China, alongside VW in Shanghai with FAW. The Chrysler venture folded, making almost every classic joint venture mistake on its way to demise. The brand name however remains and so Chrysler/Fiat proposes to relaunch production there. Inevitably much will be localized, as happens in every other major market, to save on logistics and improve coordination in other ways. Myra Wilkins made that point decades ago. This in no way implies moving Jeep production outside of Toledo. Indeed, the same "make where you sell" logic means VW is now assembling vehicles in Tennessee and Hyundai in Alabama. Oh, and for a product such as an auto China is not a particularly cheap place to produce, productivity is lower and none of the investment has been depreciated...
Second, "normal" bankruptcy, as a couple posts noted, wasn't an option in 2009. None of the posts mention DIP (debtor in possession) financing by name. There was none, so precipitous dissolution would have been the only option.
Third, what outsiders fail to realize is that suppliers account for roughly 3 jobs for every job at an assembler, and dealership jobs surpass all manufacturing combined. However these sectors can't be unbundled. In 2009 many suppliers were near or in Chapter 11 / Chapter 7. The major suppliers to GM also supply Ford and Toyota and everyone else. All it would take would've been one supplier to shut its doors in Chapter 7 for all production in NAFTA to grind to a halt. And since they're paid in arrears (90-180 days) a GM failure would have led to that, since these firms couldn't have borrowed additional funds, banks would have refused even if the Lehman aftermath hadn't impaired their capital. Given JIT production controls, that would have happened in under 10 business days (and because of trade, European and Japanese and Chinese production would have been hit, too). That would have been 700K jobs, not including truckers and specialized steel warehouse/blanking operations and tire companies.
And the GM dealer is also a Toyota dealer, the days of the stand-alone one-brand retailer lies two decades in the past. For reasons including inertia, in general the various stores in a multi-brand dealership group are seldom isolated financially, if a bank foreclosed on one it would foreclose on all (lots of GM stores on the brink, their inventory would've instantly been worth less than their "floorplan" loans in a GM Chapter 7 triggering default provisions). Dealers pay cash when a car rolls of the assembly line, and would have been out all the vehicles en route, which truckers naturally would refuse to deliver since they would not have been paid.
I've not filled in all the details, but this covers the highlights.
Oh, and loan guarantees? -- great for bankers, bad for taxpayers. Romney is an investment banker at heart, but he hasn't gotten his mind around running for a job where he's supposed to represent the general public, not hedge fund investors. Fortunately Paulson and Rattner and others did try to structure deals to provide the public with the upside, and not just the downside.
Posted by: mike smitka at October 29, 2012 09:04 PM
2slug: Two choices and two choices ONLY. The first choice was a long drawn out liquidation process that would have had a snowball effect on the macroeconomy. The other choice was something along the lines of what Bush and Obama ended up doing....
That's a fairly broad-brushed opinion which is speculative at best. What did happen was a government administration saw yet another opportunity to insinuate heavy-handed control of a sector of the marketplace... and did so. Perhaps we should have called it "Obamacars."
Posted by: Bruce Hall at October 30, 2012 05:50 AM
Why did the Obama administration favor union workers over non-union workers?
I am sure non-union workers in the auto industry would like an answer.
The non-union workers point of view:
We are the ONLY auto retirees, hourly or salaried, to have worked two-thirds or more of our careers for a Big Three company to have lost part of our pensions – in our case 30-70% - AND 100% of our health care coverage, AND 100% of our life insurance.
Our hourly counterparts represented by the most powerful unions were chosen to be made whole on their pensions and will receive monthly "top-ups" from GM (funded by TARP dollars). No similar pension treatment was extended to us.
We had no representation in the closed-door negotiations; legal protections normally available to retirees were skirted; liens on Delphi property that could have protected our pensions were surrendered for minimal value; and, while the PBGC claimed our pension plan was “severely underfunded,” an independent study by the respected actuarial firm Watson Wyatt said it was 85.6% funded at the time it was terminated.
Posted by: tj at October 30, 2012 06:49 AM
Delphi is a very different story tj. Delphi was spun off from GM in 1999! A sad story. But there's tons of sad pension stories out there (like "When Bain Came to Town," for example).
Posted by: randomworker at October 30, 2012 07:42 AM