Government at the wheel
President Obama sounded downright triumphant Thursday morning when he announced the deal his aides negotiated to help Chrysler avoid liquidation. The centerpiece is a collaboration between the troubled automaker and Italian manufacturer Fiat, which will supply new technology and international distribution. “It’s a partnership that will save more than 30,000 jobs at Chrysler and tens of thousands of jobs at suppliers, dealers and other businesses that rely on this company,” Obama declared.
His optimism reflects a belief that, even though Chrysler has filed for bankruptcy protection, the sweeping cuts agreed to by workers and banks will help the automaker emerge quickly and compete successfully over the long haul. Chrysler’s prospects will certainly brighten as a result of the deal, which would buy out commercial lenders at 29 cents on the dollar, convert about $8 billion in taxpayer loans to equity and pay a retiree healthcare fund with company stock instead of cash. But the plans for a “New Chrysler” seem to overlook the most important factor in the company’s survival: making cars that people want to buy.
In essence, the administration is pinning its hopes for Chrysler on Fiat’s ability to make more fuel-efficient engines and smaller cars. Under the deal brokered by Obama’s automobile task force, the Italian automaker will get 20% of Chrysler in exchange for its technology and overseas dealership network. It will receive an additional 10% if it uses U.S. factories to manufacture high-tech engines and a car capable of getting 40 miles per gallon. But making more efficient engines and higher-mileage cars won’t necessarily yield products that are compelling to U.S. consumers. Increasing fuel efficiency is a laudable government policy that American car buyers have yet to embrace in a meaningful way. The demand for small cars rises when the price of gasoline spikes, and it tumbles when gas prices fall.
Obama said Wednesday that he had no desire to “micromanage” the automakers. The administration will pick four of the nine members of Chrysler’s new board of directors, but officials insist that their selections will be independent, not agents of federal policy. Yet it’s hard to believe those directors won’t share Obama’s view on what automakers ought to be producing. And the government’s vision isn’t necessarily one that will guide Chrysler back to health.
The struggles in Detroit have presented a huge challenge for the administration. Chrysler and GM are too big to survive in their current form, but private lenders haven’t been willing to support them through a restructuring. Faced with a precipitous collapse, the Bush and Obama administrations understandably decided to extend a temporary lifeline, assuring that the government would play some role in remodeling the companies. But putting government officials in control of that process is a mixed blessing at best; they may be able to minimize the time spent in bankruptcy proceedings, but they can’t focus on the manufacturers’ bottom line. Instead, they’re bound by the administration’s broader economic and social policies. If Chrysler and GM aren’t free to make the products that people want to buy, they’ll spend the rest of their days dependent on government aid.
