Obama Silent on Chrysler Tax Inversion Deal

Obama at ChryslerIt’s official. Chrysler has now completely merged with Italian auto maker, Fiat. It had taken a bit over five years for Fiat to gain total control of the bailed out, once-American Chrysler Corporation. Back in June of 2009, President Obama gifted (payment was made in the form of “technology”) an initial 20% stake in Chrysler to Fiat as part of his orchestrated auto bailout process. Fiat parlayed that into full ownership and is now showing its gratitude to the American taxpayers who helped fund the deal by relocating Chrysler’s headquarters to London; a move which will lessen the company’s corporate tax rate.

While the Obama Administration has been quite vocal in condemning such deals (known as tax inversion deals) which lower corporations’ US tax bills, not much has been said when the companies involved are linked to cronies of the Administration. Obama friend, Warren Buffett, financed Burger King’s sly move to Canada to avoid paying its fair share. Not a word. Now the Chrysler move gets ignored by those who gave away the once-iconic American company to foreigners.

The lack of criticism by team Obama exposes a double-standard which was exhibited previously when General Motors was given special treatment by the President’s team regarding the treatment of tax loss carryovers when the company exited bankruptcy in 2009. The Treasury Department granted special treatment for GM to allow the company to save billions of dollars in taxes going forward. This as the President campaigned on making corporations pay their fair share!

You can not really fault Fiat (which will now be known as Fiat Chrysler Automobile) CEO, Sergio Marchionne, for the tactics. Unlike GM’s leadership, which focuses more on political appearance than upon profitability, Mr. Marchionne has the company’s shareholders’ best interest at heart. The contrast can be seen in the two companies differing stances on money-losing electric vehicles.

While GM has long-heralded politically popular cars (like the Chevy Volt) that have little commercial appeal, Fiat has had no such love affair with electric cars. Mr. Marchionne made some refreshing comments when it comes to taxpayer-subsidized, money-losing “green” vehicles. During a conference earlier this year, Marchionne asked consumers not to buy Fiat’s electric cars, since each sale cost the company money! Here’s an excerpt from a Reuters’ piece reporting on his comments:

Speaking at a conference in Washington on Wednesday, Marchionne said Tesla Motors Inc was the only company making money on electric cars and that was because of the higher price point for its Model S sedan. Decrying the federal and state mandates that push manufacturers to build electric cars, Marchionne said he hoped to sell the minimum number of 500e cars possible.

 “I hope you don’t buy it because every time I sell one it costs me $14,000,” he said to the audience at the Brookings Institution about the 500e. “I’m honest enough to tell you that.”

It’s great to see honesty from an auto industry CEO. GM’s Mary Barra should take note as she continues the company’s green car folly by doubling-down on the Chevy Volt technology with an even less popular Cadillac version of the car known as the ELR. Not surprisingly, sales have been dismal for the ELR with the company (along with taxpayers who subsidize sales to wealthy buyers with a $7,500 tax credit) absorbing more and more losses as it tries to force the technology on unreceptive consumers. And while Government’s attempt to fund the electrification of America’s auto fleet may be a popular policy to the green crowd, it is making no economic sense. Seemingly, nor does having high corporate tax rates that encourage businesses to migrate elsewhere.

Mr. Marchionne is not at fault for trying to be as profitable as possible. Perhaps President Obama should consider a less populist position when considering the implications of corporations headquartering outside of the US to lower their corporate tax rates. Wouldn’t lowering the tax rate for all companies, other than for just crony companies like GM, encourage more businesses to be located in the US? Current policies that are designed to have political popularity rather than make economic sense have not benefited any, other than cronies of the Administration who continue to be enriched.

Mark Modica is an NLPC Associate Fellow.