Chrysler: The Noose Tightens

Nine days to go and it looks like any deal to save Chrysler from bankruptcy is a long way off. The banks have told the government they won’t write-down the value of their debt nearly as much as the government has requested.

From the WSJ:

Chrysler owes the lenders, which include banks such as Citigroup Inc. and J.P. Morgan Chase& Co., about $6.9 billion. But President Barack Obama and his auto team had demanded that the banks cut that to $1billion, while gaining no equity stake in a restructured Chrysler.

In their five-page counteroffer delivered Monday evening to the Treasury, the lenders said they are prepared to cut Chrysler’s first-lien debt by $2.4 billion, or down to about $4.5 billion, in exchange for a minority equity stake, likely to be 40%, according to people familiar with the offer. The lenders also are demanding that Fiat pour some capital into Chrysler in exchange for whatever equity stake it would gain. That could be a source of conflict with the Italian auto maker, which has said it won’t put cash in the deal and instead give Chrysler only technology.

In making their case for a significantly smaller sacrifice than what the government wants, the lenders have argued that their fiduciary duty to their own shareholders and investors requires them to recoup as much as possible from Chrysler. The lenders have told Treasury officials that, if necessary, they could recover at least 65% of their loans to the company if it is liquidated in bankruptcy.

Chrysler has been given a deadline of April 30 to resolve the negotiations. Given that it’s still a private company, it remains to be seen what happens at that point in time. Does the government just say not one more dime and join the rest of the creditors in forcing a bankruptcy or does it blink? In as much as there are so many players with misaligned interests here — the company, unions, U.S. government, Fiat, creditors — it’s really doubtful that compromise is going to occur.

Comments

[Jasper M:]

Fiat doesn't have the $, so that's a nonstarter.

Apr 21 05:52 PM

[old guy:]

Enough is enough let them go ... that way the stronger US auto companies will survive ....Three cheers for FORD they took no tax payers money this would help them without spending a dime on them...wait to long and they may have to get help.....do we want to spend more on a company that has been a loser for years...Chrysler?

Apr 21 06:19 PM

[Alfredo Mar...:]

Bankruptcy would be the best thing that could happen to Chrysler.
It simply has too many debts and obligations to ever be a viable and competitive auto maker.

The other option would be some sort of zombie car company that the government throws billion of taxpayer dollars on every year, which is what GM and the UAW are hoping for.

Chrysler starting over with a clean slate would be a much more vibrant and dynamic company as opposed to a bailed out GM or Ford.

Apr 21 06:22 PM

[oilcan821:]

give chrysler another extension, so they can come back! they don't need a foreign company to take them over, look what happened when daimler came into the picture! they took every engineering idea they could back to germany, while putting nothing back into chrysler! while i don't feel bad for the upper mgt., i think america owes it to their hourly workforce to keep them going. also the part suppliers who rely on chrysler's purchase of parts and the communities where chrysler and the like are located! allowing them to just go away is absolutely immoral!!!! come on america, wer'e better than this!!!!!!!!

Apr 21 06:26 PM

[John D:]

PM - Ford took money just not from the government - they drew on a line of credit that was set up prior to the $hit hitting the fan on Wall St. When it all comes due Ford will also be in the same shape as GM & Chrysler.


On Apr 21 06:19 PM old guy wrote:

> Enough is enough let them go ... that way the stronger US auto companies
> will survive ....Three cheers for FORD they took no tax payers money
> this would help them without spending a dime on them...wait to long
> and they may have to get help.....do we want to spend more on a company
> that has been a loser for years...Chrysler?

Apr 21 06:32 PM

[John D:]

The public should be backing the auto sector & buying North American or we can just call it "Selling North America a Bit at a Time" just like selling your soul to the Devil !!

Apr 21 06:35 PM

[User 399478:]

Chrysler deserves just as much time to get their business in order as GM is getting.Daimler robbed Chrysler and left them to the scrap pile.Chrysler should ge the publics support.They can come back very strong and become the car company they were a few years ago.They were a leader in design and technology,and they can do that again.

Apr 21 07:05 PM

[Jasper M:]

Afterthought: if the feds Do 'blink', a resulting run up in GM could be a useful shorting entry.

Apr 21 09:11 PM

[Paul Killinger:]

Oilcan,

So where did the Chrysler 300 come from? Either Daimler or the aliens, take your pick. This odd looking duck has also been the single best U.S. effort to date as a world-class sports sedan. (Which tells us more about GM and Ford than Chrysler, unfortunately.)

Apr 22 10:17 AM

[relaplan1:]

As far back as the 1970's, it was obvious that eventually the US auto industry unless completely restructured. At that time the UAW should have taken steps to make US workers competitive with the Germans and Japanese. In the world economy you either compete or die.

Apr 22 09:50 PM