Chrsyler headed for bankruptcy
NYTimes reports that US auto-maker Chrysler, third largest in the States will file for bankruptcy:
WASHINGTON — President Obama forced Chrysler into federal bankruptcy protection on Thursday so it could pursue a lifesaving alliance with the Italian automaker Fiat, in yet another extraordinary intervention into private industry by the federal government.
Flanked by his automobile task force of cabinet secretaries and business advisers in the White House’s grand entranceway, Mr. Obama announced a plan that would allow the United Automobile Workers, through their retirement plan, to take control of Chrysler, with Fiat and the United States as junior partners. The government would lend about $8 billion more to the company, on top of the $4 billion it had already provided.
Granted, the Obama administration is taking steps to ensure that the company will stay operational througout its bankruptcy. So in a sense it’s not a complete shutdown and liquidation the same way Lehman Brothers is currently undergoing, but rather an opportunity for Chrysler to restructure under legal bankruptcy protection. That doesn’t mean that it’s business as usual though:
Chrysler said its factories would go mostly idle starting Monday, and remain so for the bulk of the process. Auto workers will receive about 80 percent of their base pay during the shutdown. The Treasury is providing $3.3 billion in so-called debtor-in-possession financing, and administration officials said during a conference call with reporters that no jobs would be lost during the bankruptcy.
It’s hard to say this was avoidable, given the extraordinary economic circumstances we find ourselves in. At the same time, one can’t help but wonder, as I did before, whether we’ll see Citigroup, AIG or Bank of America forced into “surgical bankruptcy” of the same stripe.
Oh yeah, speaking of the financial institutions. Here’s the role they played in Chrsysler’s move to bankruptcy:
The arrangement came after an intensive round of White House-sponsored negotiations among the Treasury Department, the union and Chrysler’s executives and creditors. After working through the night, a small group of debtholders balked at Mr. Obama’s final terms, leading the president to decide that bankruptcy could not be averted.
Bringing to bear his White House megaphone on Thursday, Mr. Obama laid out the terms of a deal that he said would save well over 35,000 jobs. And with a hint of anger, he railed against the holdout lenders, now effectively a hostile group of business partners, whom he called “speculators.”
“They were hoping that everybody else would make sacrifices, and they would have to make none,” Mr. Obama said of the creditors, among them several hedge funds and boutique investment funds. “I don’t stand with them.”
None of this is surprising. Greed is the norm on Wall Street.