• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Chrysler: Credit the Bankruptcy, Not the Bailout

    “We received confirmation this morning…that Chrysler Group repaid, with interest, by wire transfer to the United States Treasury and by bank transfer to the Canadian government, every penny that had been loaned less than two years ago.”

    That simple statement by Chrysler (and Fiat) CEO Sergio Marchionne that Chrysler had paid off its taxpayer loans sparked a victory dance among supporters of the automaker bailout that would have made Snoopy proud. President Obama issued a statement from Europe lauding the “tough decisions” he made to help the firm and made plans to visit a Chrysler plant in Ohio next week for a congratulatory photo op.

    Taking a tougher approach, the Democratic National Committee launched an ad campaign attacking opponents of the bailout, saying that if the critics had succeeded, Detroit would have gone bankrupt.

    But the pro-bailout jig is a bit misplaced. First, despite the congratulatory statements, Chrysler had hardly paid back its debt to the American taxpayer. Notice the careful wording in the Marchionne statement: Every penny that had been loaned “less than two years ago” has been repaid. That conveniently leaves out some $3.5 billion loaned to Chrysler more than two years ago. That includes $1.9 billion provided to Chrysler on May 1, 2009, as well as $1.6 billion of the funding provided to Chrysler in late 2008.

    Some of this will be recouped when the government sells its remaining 6.6 percent interest in the automaker (hopefully soon). But even the Treasury Department acknowledges that the income will not put taxpayers in the black.

    And this doesn’t even count other subsidies provided to Chrysler, as well as other automakers, including a request for a new $3.5 billion loan from the Department of Energy to fund retooling of plants for more energy-efficient cars.

    It’s also wrong to claim that the bailouts prevented Detroit from going bankrupt for the simple reason that Detroit (or at least General Motors and Chrysler) did go bankrupt. And it was those bankruptcies—more than an infusion of federal cash—that allowed the two firms to survive.

    The two automakers certainly did not have bankruptcy in their plans when they first came to Washington asking for a bailout in late 2008. Labeling bankruptcy as unthinkable, they saw federal aid as a way of avoiding bankruptcy court. And the first dollops of federal cash were given to them (during the last days of the Bush Administration) with that in mind. But that approach only extended Detroit’s woes, allowing GM and Chrysler to put off the painful cuts, and creditors to evade the painful losses, that were necessary to get the automakers back on course.

    President Obama should get credit for finally forcing the two into bankruptcy in early 2009. Unfortunately, however, it was accompanied by a massive inflow of taxpayer cash, government ownership of the two firms, and a manipulation of the bankruptcy process to advantage politically favored interests (notably the unions) at the expense of shareholders.

    Going forward, the danger is that this intervention will become a precedent, legitimizing bailouts as a standard tool of economic policy. Such a result would be disastrous not just to taxpayers’ wallets but to the economy as a whole as firms (and investors) evade the consequences of their own decisions.

    So far, the American people, to their credit, have refused to board any such bailout bandwagon. Rather than a model for the future, the public’s views toward the bailouts—outside of Michigan, at least—have been largely negative.

    Bailout supporters, in doing their victory dance, are trying to change that public perception and clear the way for future bailouts. If they succeed in eroding the public’s justified skepticism of such interventions by Washington, the economy could be in for a bumpy ride.

    Posted in Economics [slideshow_deploy]

    12 Responses to Chrysler: Credit the Bankruptcy, Not the Bailout

    1. Mike, Harper Woods, says:

      Hey James,

      Everyone, including you, keeps overlooking how the bankruptcy, bailouts and government intervention did wonders for Chrysler Financial and most of it's employees. Thanks for helping to keep Obama's dirty little secret in picking winners and losers in the automive finance industry!

      -Unemployed near Detroit

    2. George Colgrove, VA says:

      What I find funny about the Bailout is that the logistics were determined by the Bush administration and the same players that were Bush's players were also Obama's players. The Democrats are celebrating Bush's bailout of Chrysler as implemented by Obama as being successful.

      What does that make Bush? We have to be vary careful about the snake oil we will be offered in the next year as RINO's try to take our conservative stage. The crop we put in congress still does not get it. They are proposing spending bills that STILL exceed revenues. They are still using rosy projections to justify continuing massive deficit spending. Bush started the ball rolling and in three years of his presidency erased the progress made by the GOP in not only reducing federal spending but also reducing the national debt in the late1990's on up to 2001.

      If any candidate suggest one dollar more in deficit spending, they are proving themselves NOT to be a conservative. Moreover, be careful of then saying we will reduce the budget by 1 trillion dollars – because shortly after that they will either add in small print or and under the breath statement that it will take 10 years. Meaning they will only reduce spending by 100 billion each year. We saw where we got with that this last year.

      We need to stay firm on NOT INCREASING THE DEBT LIMIT. This is all we have to protect the nation from the greed and stupidity of DC.

      All this bailout of Chrysler shows is who the players were at the time and who the architects of our nation's destruction is defending.

      I agree, Chrysler's continuation has much more to do with the natural order of business then the bailout or bankruptcy. It has to do with a poorly run business putting out less than desirable cars, and because of that having a low enough value that an outside buyer was able to invest in it. It is called business.

      The bailout was successful in STEALING taxpayer money from the far future to feed the greed of union workers and to supplement their unsustainable pensions. This was abject theft. This episode also demonstrated the new function of government. Whether it is the RINOS’s and their defense contractors or the left with their labor unions, the federal government is nothing more than an extension of the ruling class party and the federal workforce nothing but minions that take from us to reward themselves for the ruling classes desires.

    3. WHICH WAY says:


    4. MFEZ, Pittsburgh PA says:

      and a manipulation of the bankruptcy process to advantage politically favored interests (notably the unions) at the expense of shareholders

      What about the money the legitimate creditors had stolen from them with this bankruptcy manipulation. We should add that te the tab as well.

    5. Bill says:

      And thus the reason that I and others that I have talked with will not invest in the automotive industry. For investor to be treated as they were is only asking them to sell off their shares and find another company worthy of investing in.

    6. Slick in Nebraska says:

      Old loans . . . new loans . . . . old payments . . . new payments . . . old faces . . . . new faces . . . old money . . . . new money – confusing isn't it?

      Not really because this is the old-fashioned "shell game" that politicians and big business routinely plays because they think we are too STUPID to know what they are really doing! This is the second verse of the same song that GM played last year when their CEO swaggered down the shiny, wide hallway of his office building bragging about how they were rolling in money and going to pay us back, when all they really did was borrow new money to pay off the old debt, and you know what they say: "The first time is shame on me; the second time it is shame on YOU!!!!"

      I think I would have loved having a job where my main assignment would be to move stuff around to dupe the guy who is footing the bill! But the main difference is that when it is the government doing it, it is considered "business as usual"; when someone like Barney Madoff does it, it is a ponzi scheme which equals jail time!! Know what Barney's big mistake was? He should have been an indenture servant of the federal government!!!!!

      Guess what? We shut off the money we are sending to Washington and then we will see who is going to be making under-the-table loans to whom and how the big boys are going to pay that money back!!!!! The net result might be kind of like when that "little blue pill" looses its umph!!!

    7. Alex says:

      I know no one here was a big fan of the Obama stimulus program however you'd have to admit that as far as economic stimulus the auto bailout was probably the best possible program. After the loans to Chrysler and GM are repaid and the government stakes are sold much (but not all) of the original cost of the program will be repaid. Even if the government still losses $2 billon dollars on the program those $2 billon did more to preserve jobs and keep the economy from falling into a depression than any other stimulus program. The auto industry provides hundreds of thousands of jobs and the government was able to get tremendous " bang for their stimulus buck" on GM and Chrysler.

    8. AL MINNESOTA says:


    9. Bobbie says:

      It was a set-up, Alex. If these companies were to have folded due to their own actions as the law once stood, someone else would've come along or the business would live out their mistakes to correct on their own as the law once laid expectation. The consequences of the actions of those in authority of their private business, needs only to be set on those who caused them. Not tax payers who have no control over the situation. Bailouts to private businesses shouldn't come from tax payers and any government program that doesn't have enough money to exist, shouldn't exist at tax payers expense, either.

    10. Pingback: Morning Bell: Unemployment Goes Up, Obama Declares Victory | The Foundry

    11. Pingback: Morning Bell: Unemployment Goes Up, Obama Declares Victory :: Obama Bumper Stickers

    12. Pingback: Chrysler Pays off Its Bailout Loans, Sparking Much Debate | BarryLawBlog

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.