Mackinac Center Analysts Express Concern Over Announcement of Chrysler’s 'Surgical Bankruptcy'

“Taxpayers and the economy would be better served by a private settlement or Chapter 11 bankruptcy negotiated among the market players, rather than dictated by the government,” says Littmann

For Immediate Release
Thursday, April 30, 2009
Contact: David L. Littmann
Senior Economist
Paul Kersey
Director of Labor Policy

MIDLAND — Mackinac Center analysts today responded to President Barack Obama’s noon announcement that Chrysler would enter a “surgical bankruptcy” involving a partial sale and restructuring of the company.

David Littmann, the Center’s senior economist, commented: “Follow the money. The control has been transferred to the union, but it’s not clear that they deserve majority control of the company based on their investment in it. This majority control isn’t an attempt to be fair to creditors or create a profitable car company. Rather, it seems to be due to a political intervention by the Obama administration.

“Worse,” he added, “there’s no exit strategy. The president says he wants to protect the taxpayer, but taxpayers will be off the hook only when Fiat takes over. When and how that happens is ill-defined, especially because it’s unclear how the union would cede control of the company once Fiat is deemed ready to take the helm.”

Paul Kersey, the Center’s labor policy director, commented: “The administration plans on a quick bankruptcy. But is there any point in the legal process where someone without a political motive is going to be able to look over this plan and say this is going to create a profitable car company with a viable future? Without that, the plan is liable to fail.”

Kersey also expressed concern about the extent to which the parameters of the bankruptcy have been set by the government, rather than private parties. “The word ‘profitable’ is all but absent from the president’s discussion of this. The president seems to see this as a jobs program and neglects the fact that at some point, this company will need to build cars and sell them at a profit.”