Ask The Best & Brightest: Was Chrysler "Given" to Fiat?

Michigan’s upcoming Republican primary has made the Bush and Obama administrations’ bailouts of General Motors and Chrysler a political football that both the Republican candidates and Pres. Obama are kicking around. The Seattle Times published an Associated Press fact-checking piece that was fairly balanced in that it pointed out that both the Republicans and Pres. Obama might be stretching the truth in their respective claims about the bailout.

On one point, though, I think that Calvin Woodward and Tom Krisher of the AP themselves told a bit of a fib, so I thought I’d run it by the B&B for your opinions. In discussing Rick Santorum and Mitt Romney’s criticism of how Pres. Obama’s team, headed by Ron Bloom and Steve Rattner, structured the bankruptcies and reorganizations of Chrysler and General Motors, the AP addresses the notion that the companies were given to the UAW and, in Chryslers case, Fiat as well.

SANTORUM: “All the federal government did was basically tip to the cronies, tip to the unions, gave the unions the company.” – June 13 New Hampshire debate.

ROMNEY: “The idea of billions of dollars being wasted initially – then finally they adopted the managed bankruptcy. I was among others that said we ought to do that. And then after that, they gave the company to the UAW. They gave General Motors to the UAW and they gave Chrysler to Fiat.” – Nov. 10 Michigan debate.

THE FACTS: These are distorted accounts of complex arrangements by which the companies, unions, government and courts fashioned a plan to lighten staggering health care and pension costs at the heart of the automakers’ decline.

A trust owned by the United Auto Workers – but not directly managed by the union – received a 17.5 percent ownership stake in GM in return for taking over the health care costs of blue-collar retirees. That stake declined as the company left government ownership by selling stock to the public; it’s now about 10 percent. In return for its share, the UAW could not strike over wages at Chrysler or GM in the last round of contract talks, and it gave other concessions too.

Just as the government did not give GM to the union, it did not give Chrysler to Fiat.

Chrysler and Fiat have paid back all but $1.3 billion of Chrysler’s $12.5 billion bailout – with taxpayers likely to be out the rest. The Italian automaker got control of Chrysler by buying 23.5 percent of the company from the U.S. and Canadian governments, after receiving an initial 20 percent stake in exchange for management expertise and technology, then 15 percent for meeting performance targets.

Though I think they minimize the ties between the UAW and the VEBA it owns that manages members’ health care, Woodward and Krisher do a decent job of explaining the structuring of the UAW’s stake and what obligations it took on in exchange for equity stakes in the companies. I think, though, that they conflate the genuinely complex health care and pension obligations of the companies to their UAW employees and retirees, and the manner in which Fiat gained control of Chrysler. I believe that they also exaggerated Fiat’s skin in the game.

The $11.2 billion in loans to Chrysler that have been repaid, were not paid back by “Chrysler and Fiat” (emphasis added). As Sergio Marchionne told a flock of business and autojournos at the NAIAS last month, the auto market in Europe, upon which Fiat is heavily dependent, will continue to be flat for the next two or three years. Fiat’s not making the billions needed to pay back those loans. That revenue was generated by Chrysler’s operations in North America.

Okay, so you can say that it’s Marchionne and Fiat’s management that has brought Chrysler back from the brink. Actually, as Pete DeLorenzo is wont to say, most of the new Chrysler product that’s behind the company’s reversal of fortune was developed by a skeleton crew of “true believers” in Auburn Hills during the dark days when the company was financially failing and being restructured. DeLorenzo sometimes is a bit of a one note Johnny when it comes to the rock star known as Sergio, but he has a point. It was Chrysler, not Fiat, that made the product that has quite possibly has brought the Walter P.’s company back from the dead.

Where I really think Krisher and Woodward fall down is when they try to say that 60% of Fiat’s controlling share of Chrysler was paid for. The article admits that Fiat paid not on thin lira for the first 35% of Chrysler they were awarded by Rattner’s team. For the purposes of accounting, a value was placed on Fiat’s “management expertise” and “technology”, two things they would have brought to the table even had they paid real money for Chrysler, in exchange for their first 20% of the Auburn Hills automaker, and then 15% of Chrysler was given to Fiat for meeting artificial targets that TTAC’s Ed Niedermeyer has shown to have been essentially a rigged game relating to the production of high gas mileage vehicles.

So what do you say, Best and the Brightest? Did the US government “give” Chrysler to Fiat?

Ronnie Schreiber edits Cars In Depth, a realistic perspective on cars & car culture and the original 3D car site. If you found this post worthwhile, you can dig deeper at Cars In Depth. If the 3D thing freaks you out, don’t worry, all the photo and video players in use at the site have mono options. Thanks – RJS