Sykuta on Bailing Out the Italians

Cite this Article
Thomas A. Lambert, Sykuta on Bailing Out the Italians, Truth on the Market (January 20, 2009),

My friend and Missouri colleague, Mike Sykuta, sent me the following insightful comments about the expected Fiat/Chrysler deal:

Today’s Wall Street Journal reports that Fiat is expected to announce a new partnership with Chrysler LLC that will, in the end, result in Fiat taking control of Chrysler. So, what about that bailout of the US auto industry?

This announcement exemplifies the fallacy of protectionist subsidies in a global economy. The Big Three auto makers pled with Washington and made their case to the US taxpayers about the need to protect and support the US auto industry with financial bailouts (never mind that the Big Three represent less than 2/3 of the US auto industry production). But if the anticipated announcement by Fiat and Chrysler is true, what then of Chrysler’s turn at the public teat? Should Chrysler be asked to return forthwith to the Treasury all of the funding it received in the name of protecting the US auto industry? Should US taxpayers continue to bail out an auto manufacturer that is (or soon will be) an Italian company?

In an era of globalized industry, national identity of corporations grows fuzzy at best. Profits that are not reinvested are paid out to shareholders that span the globe, regardless of where a company locates its global headquarters. Revenues that are reinvested are spread across the globe as well. Equity investment among firms further blurs the lines (e.g., Ford’s block ownership in Mazda). For the Big Three to wrap themselves in the US flag and seek out subsidies to protect the US auto industry was disingenuous at best. And as the on-again-off-again US automaker formerly known as Chrysler (then Daimler-Chrysler, now Chrysler LLC, soon-to-be Fiat Chrysler?) demonstrates, car makers themselves care little for national identities unless they come with large bailout checks or other protectionist policies.

Perhaps the most fitting irony of all is that the new owner will be Fiat…sort of like the US government’s investment in the auto industry.

Spot on, Mike.