Out of Control Policy Blog

Why Did Chrysler Reject a Government Loan?

Earlier this month Chrysler rejected a Treasury loan offer for $750 billion, but there is some question as to why. According the government, the auto giant's executives were unwilling to accept federal control on their compensation. There have already been intense threats towards financial firms--the AIG bonus tax and Pay for Performance Act for starters--it's understandable that Chrysler would want to have no part of that.

Chrysler officials have said they didn't need the loan from the government, but instead opted for more expensive financing from a private bank, according to the Washington Post. Although the Chrysler officials deny the pay limits were the reason for rejecting the loan, there is little doubt that this played somewhat into their thinking. After all, they are already beholden to the government for billions, why now suddenly "go Galt"?

But that even if that is the case it is not necessarily bad. Of course they don't want to take pay limits. Businesses cannot operate under this kind of scrutiny. As New York's Signature Bank CEO Joseph DePaolo said in a press release last month as his bank returned bailout funds, the expanding legislation would “adversely affect” their business, which has over 20 successful branches in the five boroughs and Long Island. They returned the funds to avoid being under the thumb of Treasury and Congress.

On a positive note, if it is true that Chrysler felt it could finance its struggling operations on its own, that is a good sign. And it is a good sign that a bank was willing to lend them money. Perhaps they are getting their business model in order. I'm not holding my breath on that, but any encouraging sign should be welcomed--and should serve to tame down language from the White House like that which sent the market tumbling yesterday on news that the government may try to keep control of banks even after bailout loans are repaid.

Anthony Randazzo is Director of Economic Research


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