Monday, December 19, 2011

Chrysler (Really) is Apparently Going to Be Another Success Story from Obama’s Policy Towards the Auto Industry

A Business Saved, Jobs Saved, Government Policy Was Correct – Republicans Will be Furious

While there is a lot to criticize about the Obama administration, and a lot more coming, one major success of their economic and business policy has been the rescue of General Motors and Chrysler.  These two companies would have been liquidated if the Mitt Romney proposal of letting them go bankrupt without government help had been adopted.  That liquidation would have resulted in the loss of two viable businesses and the loss of hundreds of thousands of jobs and the increased share of the auto market by foreign companies.  Who besides Mitt wanted that.

GM has received most of the attention,  but it turns out that Chrysler, a company saved and sold to Fiat is also going to be doing very well.

Chrysler Group LLC is on track to generate $3 billion in operating profit in 2012 thanks to rising vehicle sales in a recovering U.S. auto market, the company's chief executive said Tuesday.

The auto maker should see its global sales reach two million cars and trucks this year, and rise 20% to 2.4 million in 2012, Sergio Marchionne said in an interview at the company's headquarters here.

How did this happen?  Well it happened through restructuring in bankruptcy.

After restructuring in bankruptcy court, Chrysler is able to make money if it sells more than 1.5 million vehicles a year, he said, adding that the break-even point drops to 900,000 cars and trucks in 2012.

But a successful bankruptcy occurred only because the government stepped into that process and provided financing during the process.  Private funding was simply not available.  And while the government may not get back all of the money it provided to the auto industry, it is going to get back a good part of it, with interest.

Another boost to the bottom line has come from Chrysler's decision to borrow money from a group of banks to pay off the $7.6 billion in loans it received from the U.S. and Canadian governments to fund its operations during its bankruptcy, which ended in 2009. Mr. Marchionne had complained the company was spending too much money on the loans, which carried an interest rate of more than 14%. The company spent $1.2 billion in interest payments last year, much of that for the Treasury loans.

Does this mean Mr. Obama will decisively win the state of Michigan and other states where GM and Chrysler’s recovery made a huge difference in the economy of those states?  Not necessarily, Republicans will rail against the “socialism” of Mr. Obama, and some voters may succumb to those polemics. 

But when the history of this era is written Mr. Obama will receive the credit he deserves for this policy.  Just don’t expect his critics to grant that to him now.  After all Mitt Romney is taking the position that the government did the wrong thing, and is also taking the position that the success of the government program is because they followed his advice.  Even the pro-Romney Fact Checker of the Washington Post couldn’t understand that.

Romney is correct when he says he has been consistent on the question of bailouts [The DPE:  no, he is not] for the auto industry, but he pushes the envelope when he suggests the Obama administration, after wasting billions, ultimately reached the same conclusion. By most accounts, Romney’s approach would not have been viable in the depths of the economic crisis. And certainly Romney’s prediction that a bailout would lead to the auto industry’s certain demise was wildly incorrect.

Classic Mitt!

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