Will There Be Another Bailout for Chrysler?

Chrysler is once again standing on the curb in Washington, D.C. begging for another handout. Taxpayers bailed the company out once back in the 1970's to the tune of 1.5 billion dollars of 1970's money. Now, Chrysler, in a joint effort with General Motors (GM), is asking for another $10 billion in government assistance. Is it time to pull the plug on Chrysler and see if it can breathe on its own?

Chrysler has been trying to restructure and get its house in order for the last three years. So far, based on this new request for taxpayer charity, Chrysler hasn't figured out how to run the business profitably. There's no doubt though that if we stuff its pockets with another $10 billion, it'll be able to keep the lights on for a few more years, but to what end? To steal an image from the presidential campaign, if Joe the Plumber manages his business into the ground, who's going to bail him out?

The request comes packaged with a conditional merger between GM and Chrysler. Under the proposed terms of the deal, GM would be in the driver's seat of the combined company, while Chrysler's current owner, Cerberus Capital Management would own less than 10% of the new entity.

If the two companies combine, it is likely that a number of the duplicate manufacturing operations of the two companies would be combined, most likely in the current GM factories. This means that thousands or tens of thousands of Chrysler jobs would be lost as engine and transmission factories are shuttered. On the other hand, without a merger and government bailout, GM might face eventual bankruptcy which would in turn drive closures throughout the companies involved in its supply chain. MSNBC reports the chairman of the Center for Automotive Research, David Cole, estimates that would mean as many as 2 million US jobs lost.

So Chrysler and GM are begging for more taxpayer money to make up for the money they lost in running their businesses by themselves. While it's not strictly blackmail, to threaten two million American jobs if the government doesn't hand over the money, it certainly might seem like it to the average American taxpayer. The government has a hard choice to make, not only with Chrysler and GM, but with many other large companies in the next year. The choice is this: Do we continue to nationalize American industries in order to get us through this crisis and help them survive another ten or twenty years, or do we bite the bullet and let the free market decide which companies survive.

It's clear that Chrysler's business model hasn't worked. Trying the same thing one more time with a new batch of cash isn't going to change the company's eventual fate as if it were some magic wand. These ailing corporate giants need to break the mold and find innovative approaches to their businesses. In my experience, that kind of innovation usually comes from upstart young companies. Think about the early Microsoft (MSFT), Dell (DELL), and countless others. As long as the US government continues to provide a safety net for failed business practices, those practices will continue.

So, I say to Chrysler and GM, if the merger is a good idea, find a way to convince someone to risk their capital with an investment in your business model. If you can't convince seasoned business people that an investment is wise, then don't try to blackmail the American taxpayers or their elected representatives with the threat of lost jobs if we don't provide billions more to bail you out again.

Stock position: None.

Comments

[Steven Hansen:]

we need to save the jobs as the economic impact at this time is great. but to save Chrysler is outrageous. i have not heard any logical reason why GM wants Chrysler except to make sure GM is too big to fail.

if the automakers are saying they are going to fail without a bailout - then they should be seized peremptorily by the creditors. the automakers and their union have mismanaged the business model. bye-bye detroit.

if, however, our congress or the fed decides to do something - the management of the automakers has to take a big hit in salary (no bonus) and the unions lose ability to strike. An independent group should be appointed to review all compensation at the automakers (union and management) as well as all work procedures.

they are destroying our country.

2008 Oct 30 06:11 AM

[sumosama:]

check you history and your facts...the govt actually MADE A PROFIT on lending money to Chrysler in the early 80's.

2008 Oct 30 12:20 PM

[kurt walter:]

If Chrysler went out of business tomorrow would the world end? No. Let it fail.

2008 Oct 30 12:32 PM