Ailing automaker Chrysler LLC has entered into an agreement with Italian carmaker Fiat SpA. The deal would involve an exchange of technology and access to distribution networks, giving Fiat a 35% stake in Chrysler without it having to pay a single euro. However, the deal will only become binding if the US government guarantees $3 billion in aid.
The US government has already poured billions into Chrysler, but nevertheless, its plants remain closed and the company itself remains unprofitable. Chrysler’s private equity owners, who paid billions for the company in 2007, have refused to contribute another cent to their underperforming investment. Chrysler is clearly a moribund company kept clinging to life only by government funds. Now, Fiat is demanding a guarantee from US taxpayers on an investment it deems too risky to make with its own money.
While Americans face the worst economic downturn in decades, these auto companies think that taxpayers should surrender their hard-earned money to pay for Chrysler’s mistakes. Only a government that has abandoned the protection of property rights would sacrifice the wealth of productive individuals to the black hole of the auto lobby in Detroit. In a free market, a company in such a state would likely be sold off or broken up; in a mixed economy veering towards outright socialism, the government is the handmaiden of such devil’s bargains, serving political interests over individual rights.
The government’s only proper economic role is to maintain an environment in which companies and individuals are free to contract with each other as they see fit. Rather than resting the risks of its deal squarely on the backs of American taxpayers, Fiat should be committing its own money to this deal with Chrysler—and thereby accepting the consequences of success or failure on its own. This deal, however, is not one that could have been made in a free market, but by government fiat alone.