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  • The Federal Elephant in the Chrysler Bankruptcy Courtroom

    U.S. President Barack Obama discusses the plans for Chrysler to file for Chapter 11 bankruptcy in the Grand Foyer of the White House in Washington on April 30, 2009. Behind Obama are members of his auto task force.

    Chrysler is declaring bankruptcy. The step that was once declared “off the table” is now a reality. And that’s good news. The bankruptcy process provides the long-troubled automaker with the means necessary to reduce restructure itself into a viable enterprise.

    It’s also good news that Chrysler will have private-sector help in this task, in the form of an alliance with Fiat, which is expected to not only provide technological aid for Chrysler, but take a leading operational role – up to and including selection of a new CEO. The move makes sense. Fiat, which had its own near-death experience a few years ago, knows a thing or two about reviving a moribund firm. And the combination – though less than a full merger – would create for operational purposes the fifth-largest automaker globally, providing the scale necessary to survive on the global stage.

    But there is an elephant in the bankruptcy courtroom that can’t be ignored: the dominant role of the federal government in the process. Tellingly, the announcement of bankruptcy was not made from Detroit, or from a federal courthouse somewhere – it was made from the White House, by President Obama himself. That left no doubt as to who is in the driver’s seat.

    The federal role is most obviously felt in direct subsidies. Some $4 billion in loans have already been extended, and as much as $12 billion more is now expected to flow in the wake of today’s deal. But that may just be the front bumper of taxpayer support. The President went out of his way, for instance, to thank the major banks who agreed to accept deep reductions in the debt owed to them by Chrysler. Notably, most of these banks are also major recipients of banking bailout funds, and are themselves part-owned by the government.

    Taxpayers shouldn’t hold their breath waiting to get this money back. But the damage may go well beyond that. President Obama – not to mention Congress – has hardly been shy about exercising the leverage taxpayer funding gives him. Just ask Rick Wagoner, the former CEO of General Motors. This control is already being manifested in pressure to make favored fuel-efficient, small cars. Expect more helpful “advice” to come.

    The President does deserve some credit at least for not playing the protectionist card here. Despite some bluster about preserving an American car companies, he embraced a role for Fiat, recognizing the international character of the modern auto industry.

    The real worry isn’t Italian cars coming to the U.S. as a result of this deal, but the prospect of Italian-style capitalism, with its tradition of heavy state involvement in industry. Next time he meets with the folks from Italy, the president might want to ask how well that worked out.

    Posted in Ongoing Priorities [slideshow_deploy]

    18 Responses to The Federal Elephant in the Chrysler Bankruptcy Courtroom

    1. Brad Raffensperger, says:

      If I wanted to drive a car owned and operated by the government then I would move to Russia and drive a Lada or to Yugloslavia and drive a Yugo. Remember those fine examples of State manufacturing prowess? And Fiat is not putting any skin into the game and is getting a huge ownership stake, what's the deal on that? Fiat is truly playing with the "House's" money, the White House that is. Boy, is the American taxpayer getting bamboozled.

      And if anyone thinks that a free enterprising loving American is ever going to buy a car from a government run car company, they truly have been inhaling.

    2. Grace, Florida says:

      For those of us who think Government is getting way too big – We need to boycott Chrysler and anyone else they take over. Who the heck is going to go out now and buy one of these cars? We are fools for allowing this to succeed. This has got to fail or they will say it's because of them stepping in that Chrysler got back on it's feet – Let them fail and GM with them.

    3. RJ Cross, Muncie, I says:

      If President Obama and the labor union is going to own and run Chrysler taxpayers will be funding this company forever. I suppose President Obama is also takeing over the Bankruptcy court and the judge will be a rubber stamp..

    4. Greg Albuquerque, NM says:

      Grace has got it right. The way we the people counter these government moves is to boycott the companies the government takes controlling interest in. Yes – as tax payers we will see out "investments" fail but it is better to fail with a few companies/banks than to let this nationalization carry forward. No matter how ugly it gets, we are all better off the sooner the market kills of the cumbersome/inefficient and embraces the new and effective.

    5. Trent, ND says:

      My next truck will be a Toyota…American made with non-union labor and not owned by the American Government, not sure about the Japaneese government (I would guess not since they build in the U.S.). I know others that drive Toyota trucks and are satasfied customers.

    6. Trent, ND says:

      BTW I am also refinancing my house and my rentals with a local bank that uses local money only and didn't take any TARP money and has better customer service…another way the end consumer can take action against the government.

    7. Blue Dog, Michigan says:

      I am a Chrysler retiree and will not buy a new vehicle from obama motors.

    8. Dale MN says:

      I am a shareholder in these entities and I want to see my Stock Cert. and I want my Stock summary papers before tax time next year. Is there a new definition to hedge accounts?

    9. Lynn B. DeSpain says:

      My family have always driven Fords, and they called us backwards!

      Hozro

    10. Marshall Hill MI. says:

      Now we have Obama Motors and Government Motors,how

      Nice!

    11. Arnie Petralia, Roch says:

      This government driven bankruptcy will be biased to keep,the UAW in the tent. The source of Detroit's problem will survive to doom the new Chrysler. With a 52% UAW ownership, who really thinks we will get quality cars? And the switch to small cars will trash many jobs. Much more money is made building big cars and SUVs. We could have a much larger green effect by building bicycles. But how many jobs are lost swithching from big cars to bikes? So, back to reality. Switching to small caqrs will put the auto industry somewhere in between where is would be building large cars and building bikes. More jobs than bike building. But far less than building SUVs and 8 cyl sedans. Eventually Chrysler and GM will fail and need more bailouts. I'll stick with Sbaru and Hyundai.

    12. Normca says:

      An abuse of power from a president who criticized George Bush for dong what it took to protect the country. Seems to be the democrats were in control of the purse strings since January 2007. Giving an American company to a foreign country and that will cure the problem ? The unions and their demand for more is the problem and I haven't heard how that is addressed before Chrysler and next GM are dismantled. Threatening investors, firing a private co CEO, at the behest of the UAW and just because he dared borrow money from the government, kicking poorer kids out of better schools, proposing a health insurance plan that seeks to withhold care to seniors and slopping all over those who risk their lives to protect the rest of. This crisis was created by the democrat party with the Community Reinvestment Act which required banks to loan to those who did not and do not have the ability to pay a monthly payment. AIG employees had to give their rightful money back, but Fannie Mae employees kept their bonus ? What's next ?

    13. Benjamin, Salem Va. says:

      The federal intrusion into the auto industry is just a side effect of the humanistic thinking, and beliefs that so many people have concerning "global warming". It is no wonder to me that the same people who force this heresy of global warming on us, would also try to control one of the industries that they claim to be a major contributor to co2 emmissions. The false religion of "global warming" is the driving mentally behind many of the decisions our government is making. Control the auto industry, control the kinds of cars they make, control the co2 emmissions. This is all to "save the planet".

      All based on fear and false science and humanistic arrogance.

      Genesis 8:22 While the earth remaineth, seedtime and harvest, and cold and heat, and summer and winter, and day and night shall not cease.

      Psalms 135:5-7 For I know that the LORD is great, and that our Lord is above all gods. Whatsoever the LORD pleased, that did he in heaven, and in earth, in the seas, and all deep places. He causeth the vapours to ascend from the ends of the earth; he maketh lightnings for the rain; he bringeth the wind out of his treasuries.

    14. jim nv says:

      well, lets look back a few years in the past. i may getting senile in my old age, but as i recall we (taxpayers) bailed Chrysler out for 300m to keep these UAW members working. guess that goes to show you, we are stupid and our Govnt really is there too take care of our lives since we dont know how to take care of our lives with out them changing the TP roll.

    15. Dale MN says:

      Jim, that time it was a loan that was watched and was repaid. The money was not just thrown at Chrysler foolishly like this administration did with throwing it down a big uncertain ungrateful crooked black holes in all instances so far..

    16. FRANK N.Y. says:

      All of the above writers should sent their comments to the senate and congress

    17. Ken St Louis says:

      Well, I have a Dodge diesel pickup that is powered by a Cummins diesel engine that I like just fine. BUT I ain't goona buy no little bitty car made or designed by fiat. If I wanted a little car I'd buy one from Fore, or GM or Chrysler. We have and incompetent moron in the white house and about 60 of them in the US senate!

    18. Loyola, California says:

      It's easy to tell your Congressional delegation that you will boycott GM and Chrysler, http://www.rallycongress.com/boycott-general-moto….

      If you prefer, create your own free petition at http://www.petition2congress.com or use the first free month at http://www.rallycongress.com like I did. Maybe we can have an impact.

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