The Real Story Behind the U.S. Auto Bailouts

NEW YORK (TheStreet) -- Detroit's relationship with local boy Mitt Romney is ... complicated.

The son of a former Michigan governor and automobile industrialist finds himself in a critical battle to gain trust among American blue-collar voters that perceive him as a wealthy, private-equity businessman who was open to letting an icon of American manufacturing take an unprecedented fall.

Mitt Romney must cure his auto-sector headache

"Regardless of what Mitt Romney may try and say, if we took his route the industry would have most likely been liquidated resulting in economic devastation across the Midwest," an Obama campaign official said on background.

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The auto issue is a delicate middle ground for two campaigns that have struggled to convince middle-class voters that its candidate can save them from lethargic economic conditions.

On the left, the middle class sees president who has overseen a period of high unemployment, moderately slow GDP growth and a host of other tepid economic indicators. On the right, they have a former governor who earned success by cutting jobs and gutting companies in order to turn things around.

To make things worse for Romney, critics blasted the former Massachusetts governor this week after he took credit for the industry's comeback.

Romney's justification has some truth, but the infamous headline attached to his 2008 New York Times op-ed, "Let Detroit Go Bankrupt," is the sound bite that's stuck.

So while Obama claims victory for reviving the American automotive industry and Romney defends his bankruptcy argument, we're here to cut through the vagaries and explain what Romney suggested versus what Obama did.

DIP Financing, Say What?

Forget the first sentence of Romney's op-ed and jump towards the end.

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This was less about "If General Motors, Ford, and Chrysler get the bailout ... you can kiss the American automotive industry goodbye," and more about "The federal government should provide guarantees for post-bankruptcy financing."

He was referring to debtor-in-possession financing , which usually involves a private lender putting up the cash to restructure a company during Chapter 11 bankruptcy proceedings.

Lenders typically rush in for DIP financing in bankruptcies because there is a high interest rate and they're one of the first creditors to be paid back by the restructured company.

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