Apr 30 2009
Chrysler Filing For Chapter 11 Protection (Likely This Afternoon)
I just listened to President Obama address the U.S. and the world a few minutes ago from the White House. His topic – the background to, and how the American people should view, the impending Chapter 11 bankruptcy filing of Chrysler which will take place (almost certainly) later this afternoon. My comments, based on what I heard the President say, are as follows:
• this is a water-shed event for the U.S. auto industry, the current U.S. economy, and U.S. economic recovery. Consistent with my previously expressed views, the U.S. Administration is not going to stand by and allow the Chrysler and related U.S. support jobs to be lost – at least not without a hard fight even if the result is ‘postponement of job losses’ but job losses in the end;
• all interested parties (Chrysler management, suppliers, the UAW, the Canadian Auto Workers, etc.) and all but a few lenders agreed to sacrifice part of their capital or incomes to assist in the restructuring process. Those few lenders who did not agree (and, as interpreted from the remarks of CNN commentators, who may have had insurance on their loans that they could realize on only if Chrysler filed for bankruptcy) refused to do that to the displeasure of the President. As a result, as President Obama painted the picture it was this small group of ‘speculators’ whose recalcitrance resulted in the need for bankruptcy;
• as I expected, the U.S. Administration will financially support Chrysler until and when it ‘comes out of bankruptcy’. All funds committed to Chrysler’s business viability up to date and subsequently will be repaid before, as President Obama put it, Fiat takes over control of Chrysler. The underlying negotiations leading up to today between Chrysler, Fiat and (I presume) the U.S. Administration obviously ceded control of Chrysler to Fiat – a point not picked up on by commentators by the time I stopped watching the coverage. This is a further example of control of major U.S. assets leaving the U.S.; and,
• the U.S. Administration will do everything it can to expedite the Chrysler bankruptcy proceeding in order to protect the Chrysler labor force, the Chrysler dealers and their employees, and Chrysler’s suppliers and their employees. That said, no matter how powerful the Office of the U.S. President, that Office is not above the law. Accordingly, it will be interesting to see how quickly the Bankruptcy Court will act (I presume extremely quickly), but more to the point what steps will the ‘recalcitrant creditors’ take to delay the process and get want they (or their insurers) want – and what will that activity mean to the viability of Chrysler. It is hard to imagine that Fiat has committed to do a deal with Chrysler ‘no matter what the outcome to the bankruptcy proceeding’. It is also hard to believe the Bankruptcy Court will knowingly take shortcuts to circumvent ‘due process’ as I presume such activity would be appealed, resulting in time delays. At some point commercial reality may dictate to Fiat that the deal is too complicated for them.
I see this ‘play’ as being far from over with much at stake. I still believe the U.S. Administration will do everything in its power to avoid the loss of jobs an ultimate Chrysler failure would mean the to the U.S. economy. I believe the actions of the U.S. Administration are directionally correct. I also believe the road to Chrysler coming out of bankruptcy protection may not be as smooth as President Obama seems to believe it will be. I see there being unforeseen twists and turns in it. To me what is going on here is ‘reverse chicken soup’ – that is, ‘it can’t help and it might hurt’.
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Not many Americans are going to buy a small Fiat and the Jeep pretty much became toast with the advent of the SUV. I’ve rented a Chrysler a couple of times and they suck ergonomically and they drive like a float at Mardi Gras and they look like crap. There is nothing worth saving except their van business.
I say let it go and don’t fund anything. This funded bankruptcy is a deferral of the inevitable at best. (GM is different story … maybe)
Our politicians disappoint. Obama is a liberal as is McGuinty, but what has happened to Harper?? No backbone… he’s behaving like a Liberal but won’t get a lousy Liberal vote in the next election and he’s got to be losing the right!
For good reasons we all agree initiatives to support the US car industry and avoid its extinction are essential . But whether the newsflow yesterday was encouraging is another question – particularly as the President’s comments on the creditors who didn’t join the party are worrying. In the democracy that prides itself for protection of property rights and the rule of law why should any creditor be obliged to do what others see as the decent and patriotic thing if it’s not in their best interests? There are 3 main points that concern me:
1: A scheme to settle the obligations of a de facto insolvent company outside the legal framework will only hold water if ALL creditors (and to an extent other stakeholders) expect to receive a better return than they would in bankruptcy. If any creditors don’t they are absolutely within their rights to opt for due legal process. Branding them as traitors to the good and patriotic cause was, in my opinion, too close to socialism for comfort;
2: Nardelli’s interview with CNBC’s Maria Bartoroma was revealing. Apart from his irritating robotic half smiles, that can be excused in the context of the tragic events playing out, what he said didn’t make sense. The idea that the Fiat 500 is going to take the US by storm is fantasy. It’s a quirky looking but nice little car. But so are GM’s Astra, Ford’s Fiesta & Ka, Toyota’s Yaris etc etc etc. Cars which in Europe we all drive and know well. As my first car was a much loved baby Fiat I have a great sentimental attachment to the brand and have owned several so so Fiats’s since then. But I wouldn’t think of buying the current Fiat 500 against other competition now unless it was really cheap – and it isn’t.
Could Chrysler really have ‘negotiated’ an arms length deal with Fiat when they were obliged to seal the bargain in a publicised time frame set by the Government? And what about market research – that great US invention? Was any done. If so why wasn’t it mentioned. Nardelli sounded to me as if he was grasping at straws. Bad enough if he was. Terrible if the Obama administration were.
3: To many informed observers a Chapter 11 filing for Chrysler was inevitable. What the Obama administration may have accomplished through negotiations for an out of court resolution was clearing the issues to facilitate a rapid Chapter 11 outcome. In the formal Chapter 11 process process defined majorities can impose their wishes. It will be a major adminsitrative achievement If Chrysler’s Chapter 11 can run its course in a time frame of a few months. But, even if it does, there will still be the question of whether Fiat has the silver bullets to transform the old dinosaur.
A final thought. Warren Buffet has recently invested in China’s dynamic start up electric car company BYD. Isn’t that the way Chrysler and the Obama administration should go? Or have Fiat some as yet undisclosed advance in electric cars, fuel cells or a similar 21st century technology up their sleeves? Fortune have a recent article on Buffet and BYD that’s worth a read http://money.cnn.com/2009/04/13/technology/gunther_electric.fortune/