DANIEL VAUGHAN: Sergio Marchionne proved the market is better than the government

July 27, 2018

DANIEL VAUGHAN: Sergio Marchionne proved the market is better than the government

In the fallout of the 2008 financial crisis, one of the first questions asked by economists was how far the federal government would go in bailing out the major automaker companies. Ford, GM, and Chrysler all needed support in some way, and Chrysler was the smallest of the big three.

Ford turned down the bailout money from the government, balking at demands made by the Barack Obama administration. GM, the largest of the bunch, received all the attention of Obama’s task force, which was assigned with remaking the auto industry through central planners’ eyes. Chrysler, though given bailout money, was left for dead.

While the Obama administration focused on picking winners and losers in the auto industry, one man saw an opportunity. Sergio Marchionne, head of Fiat, offered to buy a Chrysler company on the verge of bankruptcy and turn it around.

The Obama administration jumped at this chance, as it allowed them to refocus on controlling GM’s actions.

Marchionne, on the other hand, focused on reviving a classic American company. And he had the right experience for the job.

Marchionne began his tenure at Fiat when it was imploding. In 2004, when Marchionne took over the company, Fiat was losing billions each year.

In just one year, Marchionne made the company profitable.

Five years later, Marchionne made Fiat strong enough that it was able to take on the massive debt and negative cash flow of Chrysler, and turn that company around too.

“I don’t care what a tough guy he was to work for, he saved our company,” Cass Burch, a Chrysler and Jeep dealer in Georgia, said of Marchionne. “He deserves a bronze statue.”

Where Obama was preaching fuel standards and electrics as the wave of the future, Marchionne bet on a different future. Instead of focusing on ventures like the GM Volt, Marchionne saved Chrysler through the 2010 Jeep Grand Cherokee, an SUV, which he said was a success “because it was unexpected.”

“It was of a quality that nobody thought that Chrysler could produce,” Marchionne told NPR in 2013.

NPR further reported: “The cars that followed, he said, were simply refinements, as the company embraced what he called ‘a process of commitment to quality and to excellence.'”

And from there, Marchionne bucked the trends dictated by Obama and his auto task force by focusing on non-electric ventures (like the Dodge Challenger), bringing Fiat cars to America, and betting on the futures of Jeep and Ram trucks and SUVs. In the process, he shocked investors and the government by paying off his loans six years early. NPR reported:

There were plenty of doubters then. But Marchionne’s words quickly turned to results. The company updated its vehicle lineup and returned to profitability. Fiat Chrysler repaid the billions of dollars in U.S. government loans six years ahead of schedule and with interest. Nearly everyone credited Marchionne.

“He had shown that he can achieve what seems to be the unachievable,” says Rebecca Lindland, an auto industry analyst with Kelley Blue Book.

Remember: Marchionne took over two companies that were near death, and radically turned them around, making them profitable and creating cars of high quality and design.

In contrast, GM didn’t fully pay back its bailout loans until 2013, well into Obama’s second term — and the government lost over $11 billion in the process.

Earlier this year, investors comparing GM and Fiat-Chrysler’s stock found that the Marchionne’s foundation continued to grow. In a post in April, one analyst concluded, “Fiat Chrysler’s performance is exemplary. The stock has jumped almost 130% since April 2017 compared to gains of just 14% for GM.”

None of this is to say Fiat-Chrysler is perfect in every way; they’ve had their downsides as a company. And Marchionne certainly had his misses along the way.

But the point is that the central planners in the wake of the financial crisis only believed in government intervention as the ultimate cure — and didn’t consider other possibilities.

The auto bailouts gave us a way to compare how various forms of assistance work. GM remained under the heavy-handed thumb of regulators for years, as technocrats, politicians, and bureaucrats dictated the dealings of a private company. It’s a successful company today, no doubt, but that success pales in comparison to what is seen in the private market.

Ford used money that was separate from the TARP bailouts and turned itself around quickly. Of those taking TARP money, Fiat-Chrysler turned around the fastest — and it was the one left for dead by the regulators.

One of the best conclusions about socialism and central planning comes from Friedrich Hayek, an Austrian economist who observed in his book, The Fatal Conceit: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

One of the great lessons learned from the auto bailouts is that the grand designs of Obama’s task force — of a green-lobby run auto industry — never panned out. The vision of entrepreneurs like Marchionne shifted the entire auto industry.

The auto industry will miss that vision, as Fiat-Chrysler mourns the loss of its former CEO.

Marchionne passed away earlier this week at the age of 66.


Daniel Vaughan

Daniel Vaughan is a columnist for the Conservative Institute and lawyer in Nashville, Tennessee. He has degrees from Middle Tennessee State University and Regent University School of Law. His work can be found on the Conservative Institute's website, or you can receive his columns and free weekly newsletter at The Beltway Outsiders. Connect with him on Twitter at @dvaughanCI.