Most of the focus on the 2009 auto bailout has been on General Motors. The Treasury Department’s simultaneous deal to save Chrysler has received considerably less scrutiny, which has been a real disservice to taxpayers. They deserve to know that what has been called the Chrysler "bailout" was in fact a U.S. government rescue of the Italian automaker Fiat.
How did this happen? As part of Treasury’s deal in 2009, Fiat’s then-20 percent stake in the company was increased to 35 percent in exchange for sharing its technology with the reorganized American car maker. The theory was that Fiat’s technology would be needed to help Chrysler become competitive again. And that was all Fiat contributed. It provided no cash, just intellectual property. It was a great deal for Fiat, since it made possible the Italian conglomerate's eventual full acquisition of Chrysler at fire-sale prices.
|Predictably, Fiat CEO Sergio Marchionne has been using Chrysler profits to prop up the rest of his company|
The bailout was a sweet deal for the United Auto Workers, too. They got a majority stake in Chrysler in exchange for the company’s pension obligations to them. Never mind that those pension costs were a major part of why it needed to be rescued in the first place. All told, Treasury invested more than $12 billion taxpayer dollars into this deal. It ultimately ended up having to write off almost $3 billion of that.
Treasury did get $1.6 billion from Fiat in 2011 to buy the rest of the government’s stake in Chrysler. Between that and the Italian company’s purchases of UAW shares, it was able to gain majority control. Fiat is expected to buy up the remaining shares this month for a little more than $4 billion. Which is to the say the bailout ultimately resulted in the transformation of the third member of the Big Three into a foreign company.
Since then, Chrysler has returned to profitability — it earned almost a half a billion dollars last quarter – making it the one aspect of the bailout that did work. But where have those profits been going? Predictably, Fiat CEO Sergio Marchionne has been using them to prop up the rest of his company.
As the Wall Street Journal reported earlier this month: “Italy's Fiat has been hit hard by the recession in Europe and is struggling to turn around unprofitable operations in the region. That has made it increasingly dependent on Chrysler's earnings to keep Fiat in the black.”
Fiat’s enormous labor costs are part of the reason. Despite lack of demand, it cannot close its own idled factories because Italian labor law forbids laying off employees. Instead they must be “furloughed” at two-thirds pay. American workers weren’t so lucky during the 2009 bailout.
If you are wondering how under such circumstances Fiat can afford buy the rest of Chrysler in the first place, it's possible because two-thirds of the money is coming from Chrysler itself. You won’t be hearing much of this from President Obama, though. “Bin Laden is dead and Italian jobs are alive!” just isn’t a very catchy slogan.