Today's Opinions, Tomorrow's Reality
By David G. Young
Las Vegas, May 5, 2009 --
Chrysler's bankruptcy is a welcome setback for an unwelcome government intervention.
When a creditor revolt forced Chrysler into bankruptcy last week, it brought a welcome blow to unseemly attempts by the American government to prop up the ailing automaker. Since the closing days of the Bush administration, the federal government has had its hand in the mix at both Chrysler and General Motors, for two very different and very ugly reasons.
For then president George Bush, the motivation was to avoid the bankruptcy of two of America's biggest automakers on his watch -- potentially the coup de grace of a disastrous presidency. For President Barack Obama, the motivation is to pander to his constituents -- specifically big labor. It's no coincidence that the President's plan would hand 55 percent ownership of Chrysler to the United Auto Workers' trust, a group whose members voted for him overwhelmingly.1
But the unseemliness of the government intervention in the auto companies goes far beyond the ass-covering and political payoffs that motivated its actions. It extends to outright lies. One of the biggest arguments against restructuring the automakers in bankruptcy court was that consumers would be unwilling to purchase cars built by a company who may not honor their warranties. Massive federal loans were needed to avoid bankruptcy court, the automotive executives told us, precisely so these warranties could be honored.
Yet when push came to shove, these very executives seemed to change their tune. Faced with Obama administration demands to cut executive compensation in return for a $750 million loan, the New York Times reported that Chrysler execs said no thanks -- they'd rather take their chances in bankruptcy court.2 This disgusting about-face exposed the ugly reality of collusion between government and big business. It is based on a web of lies about the value of the companies to the American people.
These lies began from the start. Chrysler's owner, Cerberus Capital Management first asked for government loans after the onset of the financial crisis. While arguing that Chrysler would be able to pay back the government with interest, the company refused to put any more money into the failing automaker.3 Actions speak louder than words. Yet the Bush and Obama administrations decided to move forward anyway.
In theory, an independent bankruptcy court could put an end to the ugly collusion between government, big business and big labor. If so, then the same creditors who scuttled the deal for Chrysler to avoid bankruptcy might hope to get a few pennies on the dollar through the company's liquidation.
The trouble is, that the Obama administration isn't totally out of the picture. Having given hundreds of billions of dollars to Chrysler's biggest creditors as part of the Wall Street bailout, Citibank, J.P. Morgan Chase, Morgan Stanley and Goldman Sachs4, may be pressured to take the federal government's case by proxy in bankruptcy proceedings.
Americans should oppose such meddling. Other than a vague sense of nationalist pride about the Chrysler's historic greatness, it's hard to understand what benefit the vast majority of Americans get from the company. Instead of making money as a company is supposed to do, Chrysler has been destroying wealth for years, It has been making all kinds of promises to all kinds of people that it never had any chance of keeping. Laborers were told they'd get pensions and health benefits for life. Dealers were told they'd get exclusive sales contracts for years. And banks were told they'd get their loaned money back, with interest. Even the lowly investor was sold shares with the expectation of dividends. Fat chance for all.
Now that the company must face the music in bankruptcy court, the Obama administration's plan will be the starting point of negotiations. This relies on management by the Italian automaker Fiat, which refuses to pay a dime for the company, and majority ownership by the greedy United Auto Workers. This is no way to structure a company. As politically embarrassing for the government, and economically painful for the workers, the bankruptcy court should be allowed to end this madness. Itís time to liquidate Chrysler once and for all.
Related Web Columns:
Meddling with Disaster, December 8, 2008
1. The Economist, End Game, May 2, 2009.
2. The New York Times, Chrysler Unit Said to Lose Aid Over Pay Issue, April 20, 2009
3. The Washington Post, From Hero to Zero, May 2, 2009
4. The Wall Street Journal, A Chrysler Bankruptcy Won't Be Quick, May 1, 2009