Chrysler's Future 29 comments
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It’s surely a good thing that Chrysler is filing for bankruptcy: trying to get unanimous consent for a restructuring from dozens of stakeholders — especially small bondholders — was never going to happen on a foreshortened timetable, and it’s going to be much easier for Chrysler to get out of onerous obligations to dealers when a bankrupcy judge orders it. At the same time, the downside of bankruptcy — the fact that the public will be increasingly unsure about the company’s future — is here already; it’s unlikely to get worse, especially so long as Barack Obama makes it very clear that he’s committed to Chrysler’s continued existence as a going concern.
The broad outlines of a deal are already clear: Fiat will take a 35% stake in the company and manage it; the UAW will have a 55% stake; and all the government’s TARP funds will be converted into a 10% stake. Present-day creditors do not get equity but rather get cash; the sticking point is exactly how much cash they will get. And of course present-day shareholders — Cerberus and Daimler — are wiped out, and top management will be replaced.
All of this is necessary but not sufficient for Chrysler to have any hope of a long-term future. One of the more interesting things going forward will be how Chrysler manages to turn itself into a smaller, nimbler, change-oriented company while being majority owned by the UAW — which is nobody’s idea of a change agent. In general, if you need a dose of creative destruction, big unions are not the place to look.
On the other hand, it’s not as though anybody else has been able to manage Chrysler any better, and now, by definition, workers’ interests are aligned with the owners’ interests, just because the workers are the owners. Given how everything up to now has failed, this structure is at the very least worth a try.
As for the smaller creditors who stood in the way of a deal which would have avoided bankruptcy, I have very little time for their plaints. They’re offering nothing which will help Chrysler in the future: they just want to get the maximum return on selling the bonds they picked up for pennies on the dollar. I hope and trust that the bankruptcy judge will give them short shrift.
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Lutz and Eaton weren't doing all that badly before the *cough* "merger" with Daimler. Hit products, nice pipeline, good market share, $7 or $8 billion cash reserve (real money back then)... and then the Germans took over and it all got picked clean. If Cerberus had had another 12-18 months before the oil shock and the recession they might have pulled something together, but as it was nobody could have saved 'em.
The creditors have every right, whatever their motives be, to reject any proposal that pay them less than 100 cents on the dollar. Its their asset, they rightfully own it, and they can sell it or burn it to the ground as they see fit. The UAW has been way overpaid in the past decades, they dont deserve any pity from the creditors.
Very sloppy thinking. What does the discount at which a bond was purchased matter? The administration would love to sacrifice the rule of law on the altar of expediency, but that doesn't mean we should do it. I'd rather have rule of law and every single Chrysler employee thrown out on the street than the reverse.
Contrary to some of the comments: some of the bondholders in question were secured and were right to refuse to forfeit their claim so Obama could send a Valentine to the UAW.
Thanks be to King Barak the Unready for putting up this show.
It appears the judge will be the same guy who handled Enron and Worldcom- as a New York judge he may be more sympathetic to bondholders.
I agree a decision based on private property rights and rule of law could strengthen capital confidence.
Any insight into why management decided to file in New York instead of Detroit?
Great companies would better be starting in home garages. Remember HP? Remember CSC? Too numerous examples to quote here.
Still, it will be interesting social experiment to see how a union run company fares. My only question is, when there are disputes between workers and management, who do you negotiate with?
When GM files bk (who things they won't, since they won't pay the $1 billion coming due June 1?), will the MI AG send another letter to them, too?
And let's see how the UAW runs the 'new' Chrysler. Any better than anyone else? Daimler couldn't do it. Cerberus didn't want to. Now the workers are sitting in the board room.
Let's see how they negotiate with bondholders, cut more brands, close more plants, and get more government $ (the last one won't be hard).
Surgical bankruptcy isn't an option, unless you're talking multiple amputations.
It will take a strong judge but perhaps the astronomical hourly wage cost should be reduced along with work rules. If I remember from last year the cost per hour was approximately $74 an hour.
Just thinking if I was a bankruptcy judge
-the workers would have to participate by reducing to a competitive wage.
- The bondholders would get much pain
- Pensions would be funded at a fair rate
- The company would be left in a position to grow and prosper.
All of the above can happen. With a competitive wage Chrysler would be a competitive force. Perhaps increase employment 50% in a future. Without a competitive wage it is not going to be a success.
The UAW leadership is conflicted. They dont want Chrysler to be successful, just to exist. Whatever happens at Chrysler will determine GM's future wages as well.
Location, location, location.
What's important in the auto business?
Product, product, product.
Chrysler ran out of it - it's that simple. They started to run out of "gotta have cars/trucks" when Daimler bought them. This freshly bankrupt company is still (or was until today) building cars that were once hot sellers (like the 300 and the really dated PT Cruiser) that have no matching buyers.
I was amazed (shocked) to see what a local Chrysler dealer has in its new inventory - there were about forty 300's equipped with 3.5L V6's on the lot priced over $30K . And - the dealer said Chrysler "forced" them to buy them. Too bad the dealer doesn't have the ability to "force" a customer into buying one. Perhaps the US govemment can help with that.
Bankruptcy was the best thing that could have happened to Chrysler. And in less than a few years from now - poof! gone! good riddance!
politicians, the UAW, bankers, hedge funds, unsecured creditors, the Treasury, Fiat, and more politicians. And then spread throughout this mixture, hundreds of attorneys salivating at the spectacle.
Does anyone really believe that this "surgical bankruptcy" will be over in 60 days?
Ford stock is looking mighty attractive these days.
You are right on the money...Once the government poked their hands in it and stirred the pot...Well, you know what...the rest is history...BTW, does government ever make money?
Teutonic
let me also remind you geniusus who think that eliminating union wages is the cure-all for these poorly run companies, let me remind you that it is in the interests of any party to a negotiation to drive the best deal possible for their own interests. instead of bitching about the UAW having done a hell of a lot better job at this simple task than industry management, why don't you rip industry management the new a**hole they assuredly deserve, given their failure to look out for the interest of their shareholders.
it is management that drove this industry into the ground...period.
get your facts straight. the pure wage differential with japanese manufacturers in this country is minimal.
On Apr 30 04:57 PM jstratt wrote:
> It seems stange to suggest that a bankruptcy is a great thing...
> but it is. When I heard that UAW Chrysler had basically agreed to
> freeze wages it seemed unfair for bondholders.
>
> It will take a strong judge but perhaps the astronomical hourly wage
> cost should be reduced along with work rules. If I remember from
> last year the cost per hour was approximately $74 an hour.
>
> Just thinking if I was a bankruptcy judge
> -the workers would have to participate by reducing to a competitive
> wage.
> - The bondholders would get much pain
> - Pensions would be funded at a fair rate
> - The company would be left in a position to grow and prosper.<br/>
>
> All of the above can happen. With a competitive wage Chrysler would
> be a competitive force. Perhaps increase employment 50% in a future.
> Without a competitive wage it is not going to be a success.
>
> The UAW leadership is conflicted. They dont want Chrysler to be successful,
> just to exist. Whatever happens at Chrysler will determine GM's future
> wages as well.
What becomes of the US' support and intervention prior? Doesn't it just show we've been flushing money down the toilet. So will we continue to do so?
Can or should the government tie the hands of a proper bankruptcy? Can or should the government prevent GM from following Chrysler? Was it useful for the US to have supported Chrysler back when Lee Iaccoca was around? Did they actually learn anything from the experience like don't get overleveraged, spend effort on R&D, and care about your brand?
There are so many questions and all the answers are most likely negative responses. Should I clap at the fact finally the market system is exerting some force in terms of letting bad companies die so assets can be properly allocated and good companies can benefit? Considering the good companies are sadly mostly foreign I wonder? Or should I cry for the sake that the free market system is so close to dying?
Talk about mixed emotions here.
All along what is right is for Chrysler to file bankruptcy. Then let the judge work things out according to rule of law. Here is why!
A judge would lower the labor costs so that everyone shares the pain. In doing so Chrysler would have a chance of true survival with perhaps twice the jobs that a future holds for a still non competitive automaker.
The UAW is more interested in protecting $74 an hour pay rates for fewer and fewer employees knowing that whatever Chrysler gets goes to GM and Ford as well.
The Union is also a business, and representing 200,000 future employees is better than representing 100,000 future employees. The courts would be doing everyone a favor by doing the right thing instead of making everyone believe we cant produce anything in the US.
Obama is like the parent who bought alcohol for their kids party. He makes the kid happy but at a future cost that could be severe. The only guaranteed so far is another future bailout. But hey the kids are happy!
I would take more satisfaction in the extra 100,000 auto jobs and a successful domestic auto industry. That will not happen because we will always be at a 20% cost disadvantage. Japan should be the biggest benefactor.