New Academic Study Says Chrysler Bailout was a Mistake

Brian Kelleher Richter

A just-released study conducted by academics concluded that the $12.5 billion government bailout of Chrysler in 2009 actually harmed the company more than if the government would have left them on their own.

Economist Brian Kelleher Richter and colleagues Adam Fremeth and Guy L.F. Holburn showed that Chrysler’s sales were 20 percent lower after the bailout than they would have been if the company had to fend for itself. That is true, according to the study, even if Chrysler would have had to declare bankruptcy, (which it did do, anyway), and even if its factories had been purchased by other car manufacturers. The study does not give an estimate for the worst case scenario that politicians and employees and Chrysler were worried about: that is the liquidation of Chrysler, selling the company for parts and the complete closure of its factories.

The damage done by the bailout to Chrysler as a company involved the bad reputation it gained, a higher turnover at the executive level and disputes between Chrysler’s managers and their government supervisors.

Richter stated that his study cannot answer the question which is at the heart of this Tuesday’s presidential debate: Is it worth risking billions of dollars in taxpayer’s money to save many thousands of jobs. The Chrysler investment ended up as a $1.3 billion loss for the Treasury department, and from the standpoint of management, Richter said, “this was a bad way to go about it.”

“In terms of the larger public-policy question, it’s hard to say” whether the bailout made sense, Richter said. “But the company itself should have said `No, we shouldn’t do this.’ The CEO should have said, as a fiduciary for the shareholders, I should just sell it off piecemeal.”

About James Cannon

James Cannon is an experienced hedge fund analyst. He has served on the advisory boards for various different Fortune 500 companies as well as serving as an adjunct professor of finance. James Cannon has written for a variety of Financial Magazines both on and off line. Contact James at james[at]