Private equity principles turned around General Motors and Chrysler, so why aren't they good enough for Mitt Romney and Bain Capital?
The irony of this presidential campaign fight about private equity just blows my mind.
I admit it. I am a free-market Republican who is staunchly against government intervention in business. When companies or even banks make mistakes, they should accept the consequences and go out of business.
Every 50 or 100 years, however, economic circumstances develop that are so dire that you have to hold your nose and ask government to intervene.
That was the case with the financial meltdown nearly four years ago that followed the Lehman Bros. bankruptcy. President George W. Bush and Treasury Secretary Henry Paulson did the right thing by using funds from the Troubled Asset Relief Program, or TARP, to keep GM and Chrysler alive.
When the Obama administration took over in January 2009, it decided that rather than just kick the can down the road by bridging the companies over their immediate crisis, it would restructure them by tackling the deep-seated problems.
To get the job done, it needed some experienced financial types. So the Treasury Department signed up former private equity executives Steven Rattner, Harry Wilson and others to put their private equity expertise on the auto task force.
What did Rattner and company do? They used classic private equity tactics that had been successful in the past. They restructured the companies to make them leaner and more efficient. With the power of the federal government behind them, they demanded that factories be closed and workers laid off. They slashed wages, pushed executives aside, cut retirement and health benefits and sent dealers packing. Along with the financing provided by the government, they raced GM and Chrysler through fast-track bankruptcies after stripping their overhead expenses and cleansing their balance sheets.
President Obama and the auto task force produced a huge success. Countless jobs were saved in the long term. Both companies are now profitable and, though still challenged by foreign competition on a number of fronts, they are healthier than they have been during my 30 years in the car business.
Private equity has its share of success stories in the auto industry. In 2007, Centerbridge Partners invested $500 million in bankrupt parts maker Dana Corp. It formed an alliance with the UAW and the United Steelworkers, enabling Dana to contribute cash and stock for retiree benefits, cut costs and strengthen the company's capital structure. Dana emerged from bankruptcy in 2008 and is now solidly profitable, having made $219 million in 2011. Far from cutting and running, Centerbridge still owns 9 percent of the company.
So, if you ask me, it is the height of irony -- and hypocrisy -- for the Obama administration to criticize Romney and Bain Capital for using the exact same strategies and tactics in private equity that worked so well in one of the administration's signature achievements.
You probably have heard about the ad. It pictures Romney as a greedy capitalist who loots companies and fires workers, and it features one laid-off employee who calls him "a vampire." Romney's sin: trying to rescue a Missouri steel company, GST Steel, after taking it over, only to see it go bankrupt eight years later.
The president says Romney shouldn't be using his Bain experience to demonstrate his skill at handling public finances. "If your main argument for how to grow the economy is, 'I knew how to make a lot of money for investors,'" Obama said, "then you're missing what this job is about."
But Obama himself is at the same time campaigning on his signature domestic achievement of restructuring the automotive industry using private equity principles to stimulate economic growth. If the president decides he needs to criticize Romney's record at Bain Capital, he can't take credit for saving the auto industry.
Everything is fair game in politics. But anecdotes about the failure of some private equity investments don't excuse the hypocritical argument coming from the Obama administration. This crosses a line of extreme intellectual deceit.
