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Was Obama's Auto Industry 'Reinvention' Good for Detroit?

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In a convention speech with populist overtones, bankruptcy can be a four-letter word. But Wall Street doesn't seem to agree.

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MINYANVILLE ORIGINAL President Obama told a cheering Democratic National Convention last night that he had "reinvented a dying auto industry."

The speech capped a week in Charlotte during which the Democrats hammered home a message that Republican nominee Mitt Romney would have preferred to let Detroit go bankrupt in 2009.

At one point, the founder and former CEO of CarMax (KMX), Austin Ligon, told the crowd during his speech to the convention that the restructuring of General Motors (GM) and Chrysler (F.MI) prevented a "domino effect" of one million job losses. Then there were the remarks of former TARP honcho Elizabeth Warren who criticized Mitt Romney for wanting to give "billions to big corporations."

Make no mistake: The American automotive industry is in relatively good fiscal shape. And Ford (F), GM and Chrysler are designing and manufacturing their best cars in at least a generation. So what's interesting about the story of an auto industry turnaround presented by Democrats this week is that it flows from their assertion that Romney's preference to let Detroit go bankrupt would have had disastrous effects. Far from it.

Romney, a native Michigander, is the son of the late American Motors president George Romney. It's curious that someone with such close ties to Detroit would have preferred ailing auto companies to go belly up. The fact is, Romney's bankruptcy remark, the one Democrats assailed time and again this past week, was part of his call for a controlled bankruptcy. It's not unlike the controlled bankruptcy that some European Central Bank officials have advocated for the ailing economies of their continent.

A controlled bankruptcy of GM, for instance, would have ensured that bondholders in the company weren't left hanging out to dry. GM would have also had to face its disruptive union bosses head on. These concepts are fairly straightforward and simple for a financier like Romney, who built Bain Capital into a successful private equity firm that oversaw controlled bankruptcies of some of its portfolio companies.

Instead, the auto bailout kept the United Auto Workers firmly entrenched and thirsting for more concessions. Bondholders in the original GM are indeed left wondering what happened to their money. And as long as the US Treasury continues to own a part of GM, American taxpayers aren't able to recoup the billions of dollars they've paid to fund Obama's industry reinvention.
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