It Should Have Died Years Ago

On Friday, Chrysler filed for Chapter 11 bankruptcy protection in New York City. This was after the federal government threw billions of dollars down that black hole in hopes of saving their sorry butt. This was also after teasing everyone with a possible rescue by Fiat that would avoid bankruptcy only to find our now that bankruptcy was part of the deal to suck them in after all.

As my previous rantings have said I was totally against the government bailouts in general, and the car manufactures specifically. This deal with Chrysler has proven me to be right. If and when they emerge from bankruptcy the ownership structure will be something like this:

United Auto Workers 55%
Fiat SpA 20%
U.S. Government 8%
Canadian Government 2%
Unknown 15%

The unknown 15% will probably be secured creditors and the conversion of debt to stock. This could be less if Fiat negotiates a higher percentage through the proceedings.

The big red light in this smelly deal is the United Auto Workers owning controlling interest in the company. This assures that the outrageous labor and benefit costs that drove the company into the dirt will continue and the likelihood that Chrysler will ever become a competitive manufacturer is diminished greatly. The grand plan counts on Fiat, a successful manufacturer in Europe, will spread a little magic on Chrysler and make them successful.

I really can't place all the blame for Chrysler's demise on the UAW. A big part of their failure can be attributed to inflexibility and the failure to adapt to industry changes and consumer's choices. Chrysler's heyday was before the Arab oil embargo in 1973. Before then driving big clunkers was a status symbol and gas was less than $0.50 per gallon. Japanese cars were just starting to come on the market so their only competition was other crappy American cars built by Ford and GM. They played the "Buy American" card successfully for awhile but eventually that didn't work. So in 1980 they filed for their first bankruptcy. They were bailed out by Jimmy Carter and the U.S. government in that one, too. Much lower price tag, but a bailout nonetheless. The next 29 years were fraught with feeble attempts to compete with the Japanese imports as well as GM and Ford. While GM and Ford were making quality and reliability improvements along the way Chrysler continued to shoot itself in the foot. The only way they sold enough cars to keep them afloat was low balling on government contracts and retail sales. I purchased some of their cars for my company in the late 90's and got unreliable shoddily built cars. It only took us one round with them to eliminate Chrysler from our list.

So now that it is clear that we, the taxpayers of the U.S., are in the auto business, as well as the banking and insurance business, I am compelled to begin a boycott against any company taking bailouts from the U.S. taxpayers. That begins with Chrysler and General Motors, continues with AIG and any of the banks taking funds from the government. Right now if I wanted an American-made car it would have to be Ford or Toyota. I bank with regional banks and my brokerage firms haven't received money from Uncle Sam so I guess none of them get fired yet.

My point is that government involvement in the private sector weakens our economic system and forestalls economic failures at a greater expense than if market forces were allowed to control the demise of weak players. Being a Harvard Law School graduate does not qualify you to be the CEO at GM and many billions of dollars later it will become clear.