It wasn't just the delay. He was being diplomatic, that much was very clear.
I actually knew somebody in college who was making props for The Hobbit via mail! He sent them from Oregon! He even got to see Mike Mignola original concept art for Smaug, because the props he was making were for the dragon's lair. Mignola's designs were totally and completely different from Jackson's. I also heard that he wanted to redesign/reconceive the Orcs, which in my mind validates the idea that del Toro wanted to make the series less racist.
Yes, the LOTR and Hobbit movies are awfully, awfully xenophobic. The amount of moral simplification that happened to these stories disgusts me. Tolkien rolls in his grave every time Jackson used a gory death scene (Goblin King, anyone?) just for laughs. It's absolutely abhorrent.
Del Toro's Hobbit movies would have been amazing. It's a true tragedy that studio politics forced him out of the director's chair. It wasn't just the delay, because him quitting made the sale of MGM happen faster. (The company was literally worth more money with Jackson signed to direct The Hobbit than del Toro. Jackson was a sure thing, del Toro was a risk. Think about that.)
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