http://www.msnbc.msn.com/id/30366383

At least the name will go on.

 

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It was clear to me from the get go why Chrysler was only given 30 days and GM was given 60. Chrysler is just a "trial run" for the Government for General Motors bankruptcy some 30 days later.

The Government is going to look at what worked, what didn't work and what absolutely went off tilt when it comes to Chryslers process. Everybody in their right (and left) mind KNOWS that there's no way you can come to an agreement on a merger never the less actually MERGE two major companies in 30 days. It doesn't happen.

It wouldn't even happen if your two corner stores decided to share the same name and one owner decided to sell his assets to his business.

If you read the story on MSNBC it's clear who is going to get the shaft in the bankruptcy, the bondholders. The same ones who will yell the biggest and drag GM to court over every dealer franchise agreement in existance.

 

Aren't Chrysler's bonds all secured? Chrysler is owned by Cerebus, which has far as I can tell has plenty of money, and in perfectly viable. Why is the government financing a bankruptcy for them?

 

1. All of Chrysler's bonds are in fact backed by collateral from Chrysler.

2. Chrysler is walled off from Cerberus. Cerberus has firewalls in place that keep them from tying up more than a certain percentage of their assets in any single holding. Cerberus has plenty of money, but if they invested more into Chrysler, it would drag down the rest of Cerberus, which is why they have firewalls in place to prevent this.

3. Cerberus paid for Chrysler to get their hands on Chrysler Financial. That done, they can write off the rest of the company because over the years, they will certainly make back the money invested to date via current and future loans (which by no means are limited to vehicles made by Chrysler). Therfore, if Chrysler makes money, then great! Extra income for them. If Chrysler goes under, they write it off and they have already set themselves up to make money from the original deal.

4. The government is looking to fund Chrysler's bankruptcy because:

a) Chrysler going under will immediately move Chrysler's retirees that fall under the UAW or Chrysler funded right smack into taxpayer funded... which is both legally binding and will cost a whole godawful amount more overall than simply giving Chrysler money to stay open.

b) The unemployment and state and federal health care burden from the workers that would be out of work from a Chrysler collaspse would do a very serious number on state funds that already are close to running out of money, and would also create a cascading effect on the economy as a whole.

c) Governments do from time to time step in and help fund a bankruptcy when it's in the taxpayer's best intrest.


The government seems to be taking every step possible to avoid having to continually pump money into GM and Chrysler by making demands on both that not only would ensure viability during the current economic downturn, but would set the stage for both GM and Chrysler to be money machines when the economy rebounds.

Ford is acutely aware of this, and is aggressively negotiating to match any concessions GM and Chrysler get from their parties, regardless as to if it's vital to Ford's current survival plans or not.

 

Chrysler was 100% done as soon as the government gave them 30 days to do a deal with Fiat. Fiat merely has to wait 59 1/2 days and give Chrysler a very low ball offer.

Government screwed up completely as they acted in such a way as to destroy the value of the loan from the government. Folks, the current administration are NOT the people you want making decisions for any commercial enterprise.

 

Absolutely!!!

 

Despite the "good news" about Chrysler noted above, and the "good news" we discussed 2 weeks ago, when you guarantee to pay your lenders off with .22 on the owed 1.00, that's just not a good thing for ANYONE else BUT Chrysler.

As an insider, we payed the insurance premium to join the government-backed program that guarantees payment for product already run and on the shelves (or sent) to Chrysler based on a legitimate order from Chrysler. That means we WILL get paid for the parts we made/make. Downside - it cost us a percentage of the sales price of that part to get the money. If we make a 10% margin, and we just paid what amounts to 3% of the price of the part as an insurance premium, our margin just dropped 3% on every part we sell to Chrysler. Run that across every part you make for them, and you are talking big bucks. Throw in the recent "requirements" from Chrysler asking/demanding 5% to 30% price cuts across the board, reduced costs for tooling and such, and what you have is a lot of suppliers that are now being forced to make parts at a loss - even if they are in the insurance program, and if they are not... they just got .22 on the 1.00 for everything they are owed by Chrysler.

We just had our Q1 business review last week, and it is dismal. My company has enough money to fortify their position right now... buying into the insurance deal, negotiating "cash" purchases of raw materials, and other good activity, but most companies out here run 30-days to 60 days on payables, run credit with suppliers of raw goods, and have Chrysler and GM wanting 60-90 days on payments. It's a credit crunch unlike the one facing the everyday consumer, and it closes your doors when you can't get a steel maker to bring you a shipment of steel because he wants paid "COD" (Or worse yet he wants all his past deliveries paid in full before he will bring the next one).

Let's certainly look at Chrysler (and GM too FTM), but let's also look at every entity that makes Chrysler what it is too. I still see most folks looking at the tree in front of them - the Chrysler tree - and not seeing the forrest. The tree by itself does not a forrest make. Mom and pop shops, small businesses, middle-sized and even billion-dollar companies are going to be slaughtered by a partial payout from BK11 proceedings, and the "remaining" Chrysler will be floundering , trying to find shops that can/will supply them - even at their vastly reduced levels.

My point is, Chrysler - the entity, is all folks seem to be looking at in-depth, when the truth is that even if it comes out of BK11 in 1 piece and alive, it is still very likely to die because it's support structure is not getting the same life support and attention. Why hand billions to Chrysler to run, but CHARGE their tier-1 suppliers to join an insurance program to ensure paymet for parts or risk getting .22/1.00 for your outstanding accounts?

I also find it interesting how the media at-large is perplexed by the Fiat proposal and their stance on the union. I am even a little puzzled myself, because Fiat - based in Italy - is sitting squarely in Europe which promotes national unions for every career imaginable. Could this be the beginnings of a plot to rebase themselves in a union-free US incorporation? Like BMW and Mercedes found out - good honest American workers can produce as good a product as anyone in the world - even the Germans - when they are properly motivated to do so. To the point where it was profitable (very much so) to make many SUVs, sports cars and sedans here in the US plants and ship them back to their homeland. There are SUVs and Sportscars running all over the Autobahn that were assembled in Spartanburg, SC and Huntsville, AL.

It is a curious time to watch the big boys shake and bake. I never would have thought it would really come to this.

 

Other than skittish consumers getting even more skittish, the rest of this doesn't sound all that bad in certain respects:

1) Chrysler would be owned by people THAT ACTUALLY WOULD GIVE A DAMN ABOUT IT...i.e. Fiat, UAW, and the Treasury Dept, versus a hedge fund that couldn't care less.

2) I don't think at this point that the Federal government would have put this much time, money and effort into these companies to let them end up in Chapter 7.

We shall see...