Federal Bankruptcy Judge: Bailout Was Only Way to Save Chrysler

(Image credit: Jeff Kowalsky/Bloomberg/Getty Images)

The federal judge who presided over Chrysler's bankruptcy told ABC News in an exclusive interview that the ailing company could not have survived without taxpayer money.

"The record before the Court was clear that there were no other sources of lending," said Arthur J. Gonzalez,  who served as chief judge of the U.S. bankruptcy court for the Southern District of New York.

The bailouts of G.M. and Chrysler remain a political hot potato in Midwest states such as Michigan, Ohio, Illinois, and Indiana, which are heavily dependent on the U.S. auto industry.

President Obama is taking credit for saving more than a million jobs because of the bailouts, while Republican candidates have voiced their opposition to the government loans.  GOP front-runner Mitt Romney insists, "It was the wrong way to go," and that General Motors and Chrysler should have gone through "a private bankruptcy process."

But Gonzalez, who retired from the federal bench on March 1, told ABC News: "One thing is clear, without government support in one fashion or another, there were no sources of funding."

Gonzalez, now a law professor at New York University, said Chrysler - then the weakest of the Big 3 automakers - did not have the ability to secure financing on its own and "it was not generating sufficient cash to operate without an outside source of financing."

During the 2009 bankruptcy, Chrysler closed dealers, shut factories, and demanded pay cuts and other concessions from union autoworkers.  The U.A.W's  retiree health fund took an ownership stake in return for more than $10 billion that Chrysler owed it.  Fiat, the Italian automaker, also got a stake for providing technology and agreeing to run the new company. It later paid the U.S. Treasury nearly $2 billion to take majority ownership.

The former chief judge also denied that the speedy bankruptcy hearing somehow prevented private investors from stepping up, pointing out that the government and Chrysler's creditors had been seeking a solution for 18 months, to no avail.

"The notion that the speed of the process may have missed a potential buyer has no basis in the record," he said.

Now the new Chrysler is accelerating on the road to recovery, earning $225 million in its most profitable quarter since emerging from bankruptcy.  Before the bailout, former Chrysler chairman Robert Nardelli told Congress the automaker was "in a death spiral." Without those government loans, Gonzalez told ABC News,  Chrysler "would have had to liquidate."

And what about that taxpayer  money? The company has paid back all but $1.3 billion of the $12.5 billion that Uncle Sam  loaned it under Presidents Bush and Obama.