Chrysler Confronts Grim Future, Despite Billions in Taxpayer Subsidies

by Hans Bader on May 22, 2009

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Environment, Global Warming, Legal, Mobility, Politics as Usual, Regulation

The federal government poured billions of dollars into Chrysler, which then went bankrupt and merged with Fiat. But Chrysler may never revive, thanks to absurdly generous compensation for the company’s union employees. The Obama Administration has refused to cut union wages substantially, though it had no compunction about ripping off the pension funds and other lenders who loaned money to Chrysler to try to keep it afloat. Even union members seem surprised by how little they were asked to sacrifice.

Moderate Democrat Mickey Kaus, who reluctantly voted for Obama, notes that the federal bailout may yet fail:

“Before the deal, Chrysler’s UAW workers made $28 an hour. After the deal, they’ll make $28 an hour. They gave up a scheduled increase in wages, plus a couple of scheduled bonuses. That explains why Chrysler’s Belvidere, Illinois workers told TV station WIFR that ‘the plan is not nearly as drastic as they expected.’ …

“As for Chrysler’s ‘chance for long-term success,’ it appears vanishingly small. Italian manufacturer FIAT is supposed to save Chrysler with new products, but according to a recent Automotive News article, ‘four of the six new vehicles from Fiat will enter the small-car segment,’ which is highly competitive but ‘covers only 14 percent of the entire U.S. light-vehicle market.’ ‘The volumes need to be big for Chrysler to survive,’ [market analyst Tracy Handler] said. ‘Will they be? I have doubts about that.’

“See also this BBC article (“it’s madness”). Pathetically, Chrysler hopes that even if they don’t save the company the new small cars will ‘[b]urnish the environmental image of Chrysler brands,” says Automotive News. Unfortunately, the pipeline for those brands’ other, larger, products–burnished or not–is pretty much empty.

“If Chrysler workers were paid, say, not $28 an hour instead of $24–still not bad–the firm might actually have a ‘chance for long term success’ through charging lower prices. But that wasn’t a sacrifice Obama was ready to ask (even if Belvidere workers were apparently willing).”

While saddling Chrysler with excessive compensation costs and union ownership, the Obama Administration has inflicted a body blow to its ability to sell its traditional lines of large vehicles by radically ratcheting up federal CAFE fuel-economy standards, which harm the Detroit automakers more than their foreign competitors. 50,000 jobs could be destroyed as a result. Meanwhile, the global-warming regulations backed by the Administration will destroy millions of jobs and “decrease average household purchasing power,” thus cutting auto sales and further hurting automakers like Chrysler.

One of Obama’s own advisers now says that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to those that deepened the Great Depression.

In the Depression, President Hoover imposed regressive excise taxes that burdened consumers. Obama is now doing the same thing through his proposed $2 trillion cap-and-trade carbon tax. Obama privately admitted to the San Francisco Chronicle (which didn’t report it) that under his “plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s 1932 excise tax increase was. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air. It is also chock full of corporate welfare, regional favoritism, political pay-offs, and give-aways to special interests.

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