A Disconnect in Romney’s Plan for Reviving the Auto Industry

Former presidential hopeful Mitt Romney has an op-ed in today’s New York Times titled “Let Detroit Go Bankrupt.” His prescription for saving American automakers through Chapter 11 begins with these two steps:

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. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car.

So far so good — overly generous union agreements are widely agreed to be at the heart of the problem, and bankruptcy would provide a mechanism for overturning those agreements.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

I’m still with him — I don’t know whether the current auto executives have been incompetent or, more generously, have simply been unable to play the very bad hand they were dealt. But in any event, wrenching corporate change requires new corporate leadership, almost by definition.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end.

Oops. Is it just me, or does anyone else see a bit of tension between new cram-down contracts in Step One and improved labor relations in Step Two?

Step One is clearly essential. I wouldn’t pin a whole lot of hopes on Step Two.