Will Chrysler Survive?

UPDATE AT BOTTOM OF POST!!

My personal opinion is a qualified “yes.”  But it’s not going to be pretty by any stretch of the imagination.

Today is the day that all phases of the government’s requirements for more funding were to be met.  And they almost made it happen.

While I’m writing this post, the announcement came through that the White House will force Chrysler into bankruptcy.  Exactly how this will affect the deal with Fiat, the newly approved contract with the UAW, and the bondholders is anyone’s guess since the fate of Chrysler will now be in a bankruptcy court.

Where the situation stood before the announcement was this:

  • Fiat announced that they would sign an agreement to form an alliance with Chrysler.
  • The UAW overwhelmingly ratified an agreement to cut benefits, cost of living increases, overtime pay, and bonuses.
  • The largest bondholders that held 70% of the debt agreed to a reduced settlement of debt.

Where the deal fell apart is that the remaining 30% of debt could not be settled with the bondholders.  Apparently, the bondholders could not tolerate for less than 30¢ on the dollar offered.  And in many respects, I can understand their position – I would not want to settle for that amount if my investment was guaranteed with company assets which are probably worth more that the offer.

The bankruptcy route that Chrysler will most likely take is Chapter 11 with Section 363(b), which is a provision of the bankruptcy code that allows companies to quickly exit bankruptcy by selling their most valuable assets in an auction, and then creating a new company without the liabilities. The “bad” assets of the company remain in bankruptcy and are liquidated.

The most valuable assets of Chrysler is Jeep and the minivans.  After that, there are a bunch of ho-hum cars, fuel-thirsty trucks, and so-so powertrains.  So if Jeep and the minivans are sold to the highest bidders, then what’s left of the company?  Not much, I’m afraid…

Now with Chrysler on the verge of declaring and filing for bankruptcy, will Fiat still ink the deal?  If I were them, I wouldn’t.  Instead, I would sit back and make offers for the pieces I want – dealer networks, maybe a plant here or there to build product in the United States, and perhaps the Jeep nameplate.

Where the UAW is going to end up with this latest development is anyone’s guess.  In some respects, the just approved contract change just might be thrown out by the bankruptcy judge.

But it doesn’t matter if Chrysler emerges from whatever bankruptcy filing, agreements, or deals if it doesn’t do the one thing that keeps any business going.  That is to sell their product.  And here’s where I think that Chrysler will have trouble.

President Obama has stated repeatedly that the state of the economy is dire, and could take up to a year to improve.  Couple that with people either losing their jobs or fearing the loss of the job will inhibit buying a big-ticket item such as a new car.  Those consumers will either fix up their old car or buy a used car.  And that’s bad news for all the car makers.

Chrysler is just the beginning.  In 30 days, we will see what happens with GM, and I’m going to predict that that situation will be just as ugly as Chrysler.

UPDATE:  FIAT SIGNS DEAL WITH CHRYSLER!!

It was announced this afternoon that Chrysler and Fiat have signed an agreement.  Full details have yet to be announced.

In retrospect, I probably shouldn’t be surprised.  Fiat is only bargining with technology, not money, something they already have & can readily share.  In exchange, they get seats on the Board and 20% of the company with an option to aquire another 15%.

In a related announcement, Bob Nardelli, Chief Hachetman of Cerberus, is stepping down from the head of Chrysler.  About time…

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About Tom Roland

EE for 25 Years, Two Patents - now a certified PMP. Married twice, burned once. One son with Asperger's Syndrome. Two cats. Conservative leaning to the Right. NRA Life Member.
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One Response to Will Chrysler Survive?

  1. Joe says:

    If the deal with Fiat means that Chrysler will get its act together, lower labor costs, produce a good product that will last, then maybe they can make it. If I had my druthers, I would rather see great cars produced in the United States. But that will only happen when the cost of employing people is less than three-fifths of the landed cost of producting a unit.

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