At the beginning of the present US financial crisis, Chrysler declared bankruptcy. Chrysler, like GM, was in dire financial straits and the federal government graciously offered to "buy the companies" and keep them out of bankruptcy to "save jobs." Chrysler, as well as GM, were, in the words of President Obama and his Administration, "Too big to fail".
By the late 1970's Chrysler had a much bigger share of the market than now, but it was bankrupt as well. However, the US government did not intervene directly, as it did in 2009. At that time, Chrysler followed the natural course of any failing corporation and had to choose whether to give-up and close its doors or reorganize. In 1978 Lee Iacocca was brought in as CEO. Iacocca approached Congress on September 7, 1979 and asked for US$1.5 billion in loan guarantees. Congress reluctantly passed the "Chrysler Corporation Loan Guarantee Act of 1979" (Public Law 96-185) on December 20, 1979, prodded by Chrysler workers and dealers in every congressional district who feared the loss of their livelihoods. Chrysler not only made a come-back on following years but eventually paid this debt.
However, in 2008/2009, decisions taken by the government were quite different. On December 19, Pres. Bush announced a rescue loan, but the general "auto bailout" proposed was rejected in the Senate. A few months later the Feds organized their own "Automotive Task Force" to "fix" Chrysler and GM. President Obama appointed Steve Rattner, a longtime Wall Street deal maker, to be the White House's official "Car Czar" - literally, that was his title. Rattner was empowered as the liaison between Obama and Chrysler and GM. But in order to simplify, we'll concentrate on the Chrysler story.
Readers may wonder what is a Czar. The term "czar" emerges when President Woodrow Wilson appointed financier Bernard Baruch to run the War Industries Board in 1917. This position was dubbed then the "industry czar" and evolved to be known as the "war czar" after World War II. "Czar" became a slang term for certain high-level civil servants, such as the "drug czar" for the director of the Office of National Drug Control Policy, the "terrorism czar" for a Presidential advisor on terrorism policy, the "cyber security czar" for the highest-ranking Department of Homeland Security official on computer security and information security policy, and the "war czar" to oversee the wars in Iraq and Afghanistan. More specifically, a czar refers to a sub-cabinet level advisor within the Executive branch of the U.S. Government. The fact is that he or she is appointed at the Executive level. This keeps many appointees outside the required senatorial approval; they answer only to the President and their actions are not accountable to Congress.
Since Jimmy Carter's years, the number of Czars serving the President are: Jimmy Carter D (1977–1981): 2 . Ronald Reagan R (1981–1989): 1. George H. W. Bush R (1989–1993): 2. Bill Clinton D (1993–2001): 8. George W. Bush R (2001–2009): 30. Barack Obama D (2009–????): 38. Critics argue that czars are unconstitutional because Article II, Section 2 of the U.S. Constitution states that the President may nominate "other public Ministers ... by and with the Advice and Consent of the Senate." Since most czar appointments are not submitted for either advice nor consent to the Senate, the argument is that they cannot exist until they receive such senatorial approval.
The fact remains that Rattner had a free hand under Presidential approval as a "car czar" to deal with Chrysler (and GM). As part of his reorganization plan for Chrysler, he "made a list of dealerships", as reported by the national media, selecting those that should be closed to save Chrysler from bankruptcy. The Washington Examiner, Newsmax, Fox News, and a host of other news agencies discovered that the list of dealerships was put together by the "Automotive Task Force" headed Mr. Steve Rattner. In addition, according to the press he is married to Maureen White, who happens to be the former national finance chairman of the Democratic National Committee. As such, she had access to campaign donation records from everyone in the nation - Republican or Democrat.
Rattner's decision was apparently sound, given the low level of sales by Chrysler's dealerships during that year. But actually, there's a very interesting pattern as to which dealership was closed and which one was not. This list and connection were exposed by The Washington Examiner and Newsmax on May 27, 2009. They reported that of 789 dealerships closed by the federal government, 788 had donated money, exclusively to Republican political causes, while contributing nothing to Democratic political ones. The only "Democratic" dealership on the list was found to have donated $7,700 to Hillary Clinton's campaign, and a bit over $2,000 to John Edwards. This same dealership, reportedly, also gave $2,000 to Obama's campaign.
Such apparently biased decision called the attention of some investigative reporters. They found that Bill Clinton's former White House Chief of Staff, Mack McClarty, owned (and still owns) a chain of dealerships in Arkansas, North Louisiana, and Southern Missouri, in partnership with a fellow by the name of Robert Johnson, who happened to be founder of Black Entertainment Television, a huge Obama's supporter and financier. They owned a half dozen Chrysler/Dodge & Jeep stores under the company name of RLJ-McClarty-Landers. None of RLJ-McClarty Landers dealerships were ordered to close - not one! - while all of their competing Chrysler/Dodge and Jeep dealerships in those areas were to shut down, including eight dealerships located near the ones owned by McClarty and Johnson. This resulted in two major Obama supporters now having a virtual monopoly on Chrysler sales in their zone. The Washington Examiner published a version of this story, and similar ones appeared in a dozen or so other web-based news organizations.
This is what happened: On March 30, 2009 President Barack Obama issued a US Government guarantee of Chrysler's warranty liabilities, and publicly stated the U.S. Government would back the warranties on Chrysler vehicles.
However, on June 10, 2009, 41 days after filing for bankruptcy protection, most of Chrysler assets were sold to "a New Chrysler", a company formally known as Chrysler Group LLC. The federal government financed the deal with US$ 6.6 billion in taxpayer's funds, paid to the "Old Chrysler", formally called Old Carco LLC.
On August 28, 2009, a White House official indicated that the government would provide debtor-in-possession financing between $US 3 billion to $US 3.5 billion, and upon a completion of Chrysler bankruptcy restructuring and court proceedings, the company would be eligible to receive up to $US 4.5 billion in financing to resume operations, for a total of $US 8 billion of government support.
Adding to the confusion is the generalized belief that Chrysler is now owned by Fiat as a result of this process, but this perception is mistaken. Under the federal court ruling, the Voluntary Employee Beneficiary Association (VEBA) formed by the United Auto Workers Union to provide health care for Chrysler retirees initially held 55%. Minority stakes were held by Fiat (20%), by the US (8%) & Canadian (2%) governments, and the rest (15%) remained in privately owned and publicly traded stocks. These proportions may change with the passing of time and present and future transactions.
In this context, it is quite interesting to note that a group of 20 relatively small organizations representing mainly teacher's union, pension and retirement plans and schools endowments who had invested in Chrysler through senior secure loans complained they have been precluded from engaging in direct negotiations with the government and forced to communicate through an intermediary formed by a group of banks who received billions of government funds. They further indicated their offers had been either rejected or ignored and could not accept a deal that was outside the well-established legal frame nor was commercially reasonable. As holders of senior secured loans, they claimed to be backed by long recognized legal and business principles where junior creditors are not entitled to compensation until senior creditors are repaid in full. They had offered to take a 40% cut even when other groups where recovering 50% . "The laws are the foundation of our economy and society" they said "the rule of law made it that way."
All this is quite difficult to comprehend if one tries to reconcile what is done by the government with what the public interest is. It appears that the President has acquired the power to manipulate private businesses and eliminate tens of thousands of jobs just because they didn't agree with his political agenda or didn't give support to his political aspirations.
There were voices in Washington demanding an explanation, but the "Automotive Task Force" never released information to the public or to any of the Senators demanding answers for what was being done. Three years later everyone appears to have turned the page with a shrug. Why is this no longer an issue? Why is there so little information and media coverage about how much these decisions are costing to the US taxpayer? Maybe we are not getting any answer because the US government is losing some $23 billion dollars on the bailouts of Chrysler and GM and this is no good propaganda nor it benefits the present Administration. The US Government subrogated its decisions to the political clout of the United Auto Workers (UAW) with subsidies of $26.5 billion (more than the entire foreign aid budget in 2011) -
- by keeping Chrysler's employees hourly salary rates of $75.86/hour, or more than $30/hour above Toyota, Honda or Nissan salaries. Although the union accepted cuts for new hires, the President's former Car Czar admitted, "We did not ask any UAW member to take a cut in their pay", and
- by covering in full the Union Trust Fund of VEBA. If the UAW VEBA had been treated like Chrysler's & GM's other unsecured creditors, the bailout would have cost taxpayers $12.2 billion less.
Obama's Car Czar, Steve Rattner, resigned on July 13, 2009, and was promptly replaced by former steel workers union boss Ron Bloom. According to CBS News, Rattner left "to return to private life and spend time with his family." At the time Rattner was under investigation for a multi-million dollar pay-to-play investment bank scandal in New York.
On December 30, 2010, Rattner reached a settlement to pay $10 million in restitution but neither he had to pay fines or penalties, nor he was prohibited from continuing to protest his innocence. But, like CBS said in 2009, he just wanted to "spend more quality time with his family." Treasury Secretary Tim Geithner added, "I hope that he takes another opportunity to bring his unique skills to government service in the future."
President Obama has personally appointed 38 "czars". As it is shown above, this is an unprecedented number of "czars". Even worse, more than 30 of them answer to no one but him, way up an all-time record! Government spokepersons argue that they all have "unique skills", as Tim Geithner likes to say. But to many American citizens, the US President is turning into an Emperor reigning over too many Czars unconditionally at his service.