Barack Obama’s bankruptcy plan will doom Chrysler and I explain why in my premier column at American Issues Project. Here’s a portion:
On April 30th in an unprecedented move, President Barack Obama stood before the nation and declared that Chrysler filed for Chapter 11 bankruptcy. That it was the president of the United States and not Chrysler’s CEO Bob Nardelli making this announcement was extraordinary. The president proclaimed that bankruptcy would allow Chrysler to come out “stronger, and more competitive,” with a “new lease on life.” That is doubtful at best.
Chrysler was doomed to failure long before its bankruptcy, and if the president gets the bankruptcy he wants, the company will be doomed to fail after it emerges. The new entity that will take its place will be owned and operated by people who don’t understand how to run a business, much less make a profit.
President Obama does not and cannot acknowledge that Chrysler’s union-dominated business model has been slowly suffocating it for many years. When Daimler-Benz purchased Chrysler in 1998, it paid $36 billion dollars based upon the belief that it was a merger of equals. Almost immediately after the consummation of the deal, however, it became evident to Daimler that the merger was in reality an acquisition.
After nine years of clashing cultures and business models, it became clear to Daimler that Chrysler was a drain on its resources. Daimler recognized something that the administration and the UAW will not admit: Chrysler’s union-dominated business model is not sustainable. Because of union member and retiree health care costs, Daimler would have experienced losses that could have reached as high as $18 billion annually, making it an anchor Daimler was all too happy to cut loose. In fact, Daimler wanted out of the deal so badly that it paid Cerberus Capital Management $650 million to take Chrysler off its hands.
What makes the Chrysler bankruptcy so important is that if Obama is successful forcing his will on the bankruptcy court, he will do the same with GM putting the American people are at risk of subsidizing two auto companies. When you’re finished reading the column, feel free to leave a comment.