|American taxpayers don't need Chrysler to survive|
Rescuing a marginal player in a competitive market will waste money and save few jobs.
I was in France last week and returned just in time to see the announcement of the "new" Chrysler Corp. with majority ownership by the United Auto Workers.
France, by the way, was still dealing with its own version of worker takeovers, but in France a worker takeover is literally that.
For example, in a southeast France Caterpillar plant workers held four managers hostage for two days over announced layoffs. Sony's French CEO was held hostage for 18 hours after he visited one of his factories to tell the staff that many would be losing their jobs. And on it went.
French law makes it so difficult to lay off any workers short of shutting down all operations that the incidents reported recently are quite unusual. French companies continue to struggle to be competitive globally. On the automotive front, how many Renaults or Peugeots have you seen here recently?
For us in the United States, the issue is how to remain competitive. Often this involves cost reduction because other companies can provide similar or better-quality products at lower prices. One of the great advantages of the U.S. approach is that most companies have flexibility to reduce costs. Often this is a painful process and does involve layoffs – as we have seen from the recent global downturn.
Nonetheless, most U.S. companies will survive in a stronger competitive situation. In the longer run this will mean more job opportunity, not less.
Which brings me back to Chrysler. The Obama administration has acted boldly to try to save a core group of manufacturing jobs by forcing concessions from Chrysler's workers and creditors.
By all accounts they have done a credible job, given the circumstances. In spite of the administration's position that the "managed bankruptcy" was forced by minority bondholders, the truth is that a bankruptcy of some kind was needed to free Chrysler to rationalize its bloated dealer network.
The administration is proceeding with this bankruptcy in the best way possible, trying to expedite the process by having most elements agreed to by the new owners (the UAW, Fiat, and the U.S. and Canadian governments), bondholders, and suppliers so that a "30- to 60-day" process is possible.
Meanwhile, we taxpayers are agreeing to extend another $8 billion in financing and will guarantee the warranties on Chrysler products sold in this period. Moreover, Treasury will forgive $4 billion previously loaned Chrysler in return for an 8 percent equity stake in the new company.
How should one think about this as a taxpayer? Is this a good or bad deal?
From a public policy standpoint, the government says we are preserving perhaps 35,000 jobs at Chrysler itself and more from those companies that supply Chrysler. (In the interests of full disclosure, I am a board member of a company that is one of Chrysler's suppliers.) However the government totes up these numbers, there are painfully few jobs now at stake here. By way of contrast, last month the economy lost some 600,000 jobs.
As a taxpayer, I do not think this is a good deal. The key to Chrysler's future success is partly to be cost-competitive, but it is more to be "car-competitive." Consumers need to have a reason to buy Chryslers and Chrysler has no compelling products to sell. Some would say that Jeep is a good brand, but there are now many, many competitive SUVs.
Apparently, the Fiat connection is meant to give Chrysler new, smaller car models. However, many of these models do not yet meet U.S. environmental standards, and one has to sell a lot more small cars, again highly competitive, to make a profit. In truth, the very best thing the Obama administration could do for Chrysler may be to add a $2 per gallon tax on gasoline to spur the sale of smaller cars.
No, I think the likely U.S. winner in all this restructuring is Ford. While Chrysler and GM are both now likely to go through some sort of bankruptcy process, Ford continues to gain market share.
The sad truth is we U.S. taxpayers do not need Chrysler. They are a marginal player in a competitive market. The Obama administration is trying to save something that is already lost. It is too much money for too little return, and it is already too late.