Buy American? Or bailout American?

News is out today that Chrysler, along with GM and Ford, will most likely receive somewhere in the neighborhood of $25 billion in government loans to "assist" them in advancing innovation. American automakers are certainly "not too big to fail". If anything the long, slow decline of one of the three would prove a boon to consumers. Keep in mind, as I noted before, Chrysler is not a public company. Private equity firm Cerberus owns an 80% share of the company. If Chrysler dies, the entire loan industry doesn't go up in flames, a few board members of one of the wealthiest companies in America do.

Chrysler obviously won't be going up for sale anytime soon as I previously surmised. This isn't the first time Chrysler has received government help. In the late 70s the company received $1.5 billion in loan guarantees to avoid bankruptcy. Back then, the company used the money to settle workers' issues (health care and wage raises) and instead of "innovating" took to bashing Japanese companies and advocating buying American. This, ladies and gentlemen, is the very definition of moral hazard. Let's hope we are not being hoodwinked again.

(Photo: Bruce Campbell)

The death of the death of...Chrysler?

Given my co-author's recent discussion of transportation costs, Chrysler's announcement today that it is aiming to cut supply chain costs 25% within the next three years seems particularly relevant.

It's certainly a strange time to announce such a thing. With manufacturing centers all over the world (that are expensive and take a long time to construct), insanely complex shipping systems, and heavy products, car companies are the last corporations that should be able to cut costs so quickly and dramatically. On paper, Chrysler, as the smallest and least diversified of the big 3, should lose the most from rising oil prices. But apparently, "reducing complexity and maintaining a stable production schedule" is all you need to do (sounds easy enough, right?).

Remember that Chrysler is a private company; if it was traded I would be inclined to believe this was a PR stunt to prop up share prices. But as a Cerberus holding, the company has no public responsibilities. So what gives?

Chrysler has been taking a lot of heat lately for keeping their financial cards so close to their vest. An announcement like this is meant for one of two things. It is either a way to assure those associated with the company (and skeptical market types) that Cerberus is serious about actually streamlining the company and getting it back into the black OR it's a ploy to convince a number of Chinese foreign firms wishing to enter the domestic automobile market that Chrysler will be a bargain when it (soon) goes up for sale. What do you think?