Ex-Obama aides explain opposition to Chrysler rescue
Washington — Two former Obama administration economic advisers explain in a new journal article why they didn't believe in 2009 that a merger of Chrysler LLC and Italian automaker Fiat SpA would succeed.
Austan D. Goolsbee and Alan Krueger, two former chairmen of the Council of Economic Advisers in the Obama administration, were among a majority of Obama advisers who predicted in March 2009 that Chrysler would not survive five years if the Obama administration extended further assistance.
The pair — economics professors at the University of Chicago and Princeton University, respectively — argue in the Journal of Economic Perspectives that Chrysler had already been acquired twice without success by Daimler AG and Cerberus Capital Management LP.
"We saw little prospect that a purchase of Chrysler by Fiat would provide more synergies or a more reassuring brand name for American consumers," the pair wrote. "From a hard-nosed triage view, it was unclear why Chrysler should receive special treatment, especially given that public bailout money could probably save more jobs in a less capital-intensive industry and a liquidation of Chrysler did not seem to pose a systemic threat."
The pair said in a worst-case scenario that Chrysler's collapse would have cost 300,000 jobs at the company and in the supply chain. Private equity firm Cerberus' purchase of Chrysler in 2007 "had been unable to stem the problems, and instead added more years of malaise and mismanagement."
The pair defended the much tougher terms on Chrysler. "One could justify the less generous terms of support for Chrysler in part because Chrysler was in more precarious financial shape than GM in 2009, and in part because Chrysler was less pivotal for the near-term course of the auto industry and economy given its smaller size."
The pair also said that the $85 billion auto bailout shouldn't be a model for future intervention by the government to rescue failing firms.
"We certainly had no desire to put the U.S. economy on the path we perceived that Japan had followed in the preceding decades, where stagnation had continued for years as the government propped up zombie firms that were not viable companies," they wrote.
The Obama administration in 2009 underestimated the total auto industry turnaround.
"We thought that Chrysler and GM, which had been losing market share for decades, were viable restructured businesses if the market was over 16 million cars, but would there be sufficient demand for both Chrysler and GM to be profitable in the long run? Trying to keep each of the Big Three in operation with such a low rate of sales might endanger them all," they wrote.
The auto industry has been a huge bright spot in the U.S. economy for the last five years, adding back more than 250,000 jobs from the June 2009 low. Auto sales have driven economic growth faster than the housing recovery. "Yet we suspect that the conditions that led the auto bailout to be a success were fairly unique in American economic history, and, we hope, unlikely to be repeated anytime soon," they wrote.
Fiat Chrysler spokesman Gualberto Ranieri wrote in a company blog post last month that in June 2009 "Chrysler's value was zero, to say the least" and "at that time, nobody was lining up in front of Chrysler's Auburn Hills, Michigan, headquarters interested in buying a single stake in the automaker." He noted that since then, "Fiat has made massive investments into Chrysler, including contributing its intellectual property and welcoming tens of thousands of dedicated new hires into the fold."
In a Detroit News interview in January, President Barack Obama noted the government recovered all but $9.3 billion of the auto bailout, but said his administration had recovered $70 billion — more than the $57 billion his administration invested. Obama's tally didn't include the money extended by the Bush administration.
"It's been a good deal for the American taxpayer. It's been a good deal for autoworkers. It's been a good deal for America and it saved about a million jobs," Obama said in that January interview.
Obama said it was a tough call over whether to save Chrysler. "The question was not, 'Do we intervene?' The question was, 'Do we intervene in a way that actually spurs the sort of restructuring that gives American automakers the chance to get back in the game.'"