Chrysler's Return to Profitability

Bloomberg has reported this morning that the Italian auto company Fiat S.p.A. (F) will purchase the U.S. Government's remaining shares of Chrysler Group LLC for $500 million, a deal which marks the end of the government's position in the bailed-out automaker. Simply put, "Fiat [has taken action] to consolidate control." Now, the only other stakeholders in Chrysler include the Canadian government (which owns shares that could be worth up to $135 million, or 1.7 percent of the company), and the United Auto Workers (UAW) retiree healthcase trust, which owns 41 percent, or approximately $3.42 billion in shares.

Many of you may be unfamiliar with the mission of the UAW. So, because of the magnitude of its stake in Chrysler, I will provide some brief background information. According to the union's website, the UAW is "the union for America’s auto workers, representing more than 100,000 working men and women at U.S. auto assembly, stamping, engine and powertrain plants." UAW members are associated with a number of leading automakers, including but not limited to Chrysler, Ford, GM, Mazda, Mitsubishi, and Volkswagen. Specifically relating to the Chrysler story, the union's employee healthcare fund, or the UAW's Voluntary Employees' Beneficiary Association (VEBA) trust, will have to decide what to do with its approximately 46 percent stake in Chrysler Group.

With the purchase of the government's remaining shares in Chrysler, the Treasury Department comes out roughly $1.3 billion short of its initial investment. This figure, although significant, is far outweighed by the tax revenue which resulted from the roughly 1 million jobs saved by the bailout. When multiplying the number of jobs saved (1 million) by the average salary of a UAW member ($46,380), and then multiplying by the percentage taxed by the Federal Government (25%), we see that the Government received roughly $11.595 billion in tax revenues. When combined with the $1.3 billion lost, we see that the Treasury netted $10.295 billion.

Given the success of the program, the President visited a Chrysler plant in Toledo, Ohio this past week, in what felt remarkably like a campaign stop. In echoing his 2008 campaign slogan -- and in contrasting himself with those who advised not to prop up the industry - the President said "I want you to remember all those voices who were saying 'No, no we can't." The auto bailout, which was initially unpopular and opposed by Republicans, is now being used by Obama as a selling point. In an election cycle that is bound to be dominated by discussion of the economy, the President is wise to focus on the few bright spots in an otherwise lackluster economic performance since his inauguration.