Business

10.31.12

In Ohio Ads, Mitt Romney Fails Auto 101

Want to win in Ohio? Then don’t go after the auto bailout. And definitely don’t twist the facts while you’re doing it. Daniel Gross on Romney’s puzzling line of attack.

For Republicans, getting on the wrong side of the government-backed U.S. auto industry recovery was an own goal. The rescue efforts were started by President Bush. Autos are the largest manufacturing and retail sector of the economy, with huge operations and economic footprints in states currently controlled by Republican governors (Ohio, Michigan, Wisconsin). Sure, it was possible to quibble with the way the bailouts proceeded. But to rail against them as conceived in sin, and hence irredeemable, puts the party in the strange position of rooting against the revival of a very important industry. 

For Mitt Romney, the Republican presidential nominee, doubling and tripling down on opposition to the bailouts in Ohio—a swing state where Chrysler and GM have massive, thriving operation—is the equivalent of a hat-trick. Wrong on substance, wrong on style, wrong on politics.

Romney has been running willfully dishonest television and radio ads in Ohio—and in the Toledo market in particular. In a TV ad, which you can see here, the narrator charges: “Obama took GM and Chrysler into bankruptcy and sold Chrysler to Italians who are going to build Jeeps in China.” A radio ad asserts that “Under President Obama, GM cut 15,000 American jobs, but they are planning to double the number of cars built in China, which means 15,000 more jobs for China. And now comes word that Chrysler plans to start making Jeeps in, you guessed it, China.”  

Let’s unpack these claims. The ads are mostly wrong on the facts. Yes, Chrysler said it would produce some Jeeps in China—the ones it plans to sell to Chinese car buyers. (It doesn’t make much sense to ship $25,000 vehicles from the U.S. to China, a country where the median income is about one-fifth what it is in the U.S.) And of course, GM is making lots of cars in China—in fact, it sells more cars in China than it does in the U.S. But China is the world’s largest car market. And GM is a global business.

But what about this notion that there is something sinister in selling Chrysler to Italians? It’s not like the Obama administration sold the company to the mob in Naples. No, here’s what happened. Cerberus, Chrysler’s private equity owner (let me repeat, a PRIVATE EQUITY OWNER), essentially abandoned the company and sent it careening toward bankruptcy. In the absence of other investors, the U.S. government stepped in, crammed down some bondholders (boo hoo!), and convinced Fiat to take over the company. Fiat injected capital, imagination, and real auto talent—three things Cerberus lacked.

Toledo’s GM and Chrysler plants are living rebukes to those who opposed the bailout.

When I visited Toledo in March, I came away with the sense that the Italians were the best thing to have happened to Chrysler in years. The Italians were the ones who turned the factories back on, made the excellent Clint Eastwood Super Bowl ad, introduced new products like the Dodge Dart and Fiat 500, and invested to make the Jeep and Ram pick-up trucks more fuel-efficient. The Italians also hired thousands of employees in Ohio and Michigan and have invested in the plants. Today, thanks to the Italians, Chrysler is a profitable company and a useful corporate citizen. On Wednesday, Chrysler reported earnings of $381 million, and noted that it paid $56 million in income taxes. The total cost to the taxpayer was about $1 billion.

General Motors likely won’t come close to making the government whole on its investment. But the caricature of GM as a dysfunctional jobs exporter is off-base. The company has made big strides in cleaning up its balance sheet and cutting costs. On Wednesday it reported quarterly earnings of $1.5 billion. In the quarter, it hacked down its pension liabilities by $26 billion.

Now, running misleading ads in swing states where voters don’t know much about what has happened with the car industry—like, say, Iowa or Nevada—might make sense. But running the ads in Ohio, and in particular in Toledo, doesn’t. As I discovered on a visit to Toledo in March, the people in these regions are not exactly low-information voters when it comes to the bailouts and their impact on the economy. In the Toledo area, Chrysler and GM are huge direct employers through their giant plants. (Toledo is home to the original Jeep plant.)  And they’re indirectly responsible for even more activity at suppliers and logistics companies. The area’s retail economy benefits when GM and Chrysler add workers to their payrolls. People in Toledo can tell you all about production schedules, the number of shifts running at the plants, and how that compares with 2008 and 2009.

Toledo’s GM and Chrysler plants are living rebukes to those who opposed the bailout. The roof of the GM transmission plant, on Alexis Road, which is covered with solar panels is like a double finger in the eye of GOP anti-industrial policy. (A historic center of glass manufacturing, Toledo has also benefited from the mini-boom in solar.) Thanks in large measure to the revival of the auto plants, there are more jobs in Toledo now than there were in January 2009. Since January 2010, the region has added about 15,000 new jobs—an increase of 5.2 percent. 

The ads did something else that would have been thought unthinkable a few weeks ago. They spurred CEOs of giant companies to weigh in on the campaign, essentially as surrogates for Obama. In response to the ads, Chrysler CEO Sergio Marchionne wrote a letter to the Detroit News, disputing Romney’s charge: “I feel obliged to unambiguously restate our position: Jeep production will not be moved from the United States to China.” He noted that “U.S. production of our Jeep models has nearly tripled (it is expected to be up 185 percent) since 2009 in order to keep up with global demand.” He also noted that Chrysler is investing billions of dollars to improve the factories—something the company’s prior private equity owners never did—and has added thousands of jobs in Toledo. For its part, GM lashed out at Romney’s charges that it was moving U.S. jobs to China. “We’ve clearly entered some parallel universe during these last few days,” GM spokesman Greg Martin said. “No amount of campaign politics at its cynical worst will diminish our record of creating jobs in the U.S. and repatriating profits back to this country.”

Remember, the CEOs at Chrysler and GM aren’t the ones who drove the companies into bankruptcy. They’re the ones who assumed the thankless role of coming in from outside and leading the companies through difficult times. They’re Bain-quality restructuring ninjas. Romney’s attacks on the car companies as outsourcing wards of the state overlooks the huge amount of hard work and restructuring that has taken place at these companies. 

So why run these ads? Perhaps the Romney campaign has simply run out of ideas and options. The polls in Ohio haven’t moved much in months in either direction, despite the massive attention lavished on the state by both campaigns. Obama may not be pulling away, but Romney hasn’t shown any signs of narrowing the gap in a state he absolutely needs to win.