Tort Reform We Can Beleive In

Seems the Chrysler that emerges from bankruptcy does so with a bit of a CYA shield. They are immune from suits filed against cars sold prior to June 10 this year.

Of course there is pending litigation against Chrysler but Chrysler is no longer liable. The plaintiffs may win a suit - but win nothing in the process.

It's as if they aren't really Chrysler anymore, isn't it? ; -)

What's Next?

The decision by Justice Ginsburg to delay the sale of Chrysler to Fiat until further notice may mean a lot or may mean very little. The action taken today is merely a delay - possibly only for a day or so, in order to review the documentation, before deciding to hear or dismiss the appeal.

If that's what is intended, an effort to peer under the hood to see if anything is amiss before dismissing, then look for a decision before Saturday. For some reason 15 June 2009 is important (upon which Fiat's obligation to 'purchase' Chrysler expires. ; -)

If, in the next day or so, the Supreme Court declares that they will hear the appeal, the Fiat deal is gone. Arranging a marriage partner at that point will be difficult at best and the most that can be hoped for is the liquidation of Chrysler, the most valuable piece of which is the Jeep brand.

And if the court does decide to hear the appeal, what has to be done to ensure the GM bankruptcy doesn't suffer the same fate?

Put Some Time Back On That Clock (and Kiss Fiat Goodbye ; -)

Wow! After seeing Justice Ginsburg was assigned to hear the Chrysler appeal, I called the bookie and got 1 in 9 odds (how appropriate ; -). But then the longshot came in and Justice Ginsburg decided that the Supreme Court would take the appeal. I had expected the deadline to pass without any action, essentially denying the appeal.

Now what? ; -)

The Clock Is Ticking

There is a 4 pm deadline today for the Supreme Court to accept or decline intervening in a decision to let the Chrysler sale to Fiat go through. If the Supreme Court decides to take the case, look for lots of hand-wringing and gnashing of teeth on the part of administration spokespersons and talking heads on the boob tube.

Myself, I give it 1 in 3 odds of the court wanting to stick their noses in this one.

There's also been some discussion about how poorly vetted the deal with Fiat has been. To say the least it was a hastily arranged marriage, kinda like Bank of America and Merrill Lynch. ; -)

A Long Row to Hoe

Chrysler is said to be emerging from bankruptcy today to be swallowed by Fiat. This is a cashless transaction where Fiat converts equity in Fiat for the purchase price of Chrysler. And some folks will say, "swell".

GM enters bankruptcy today, ostensibly to clear the cancerous brands, Saturn, Pontiac, Opel/Vauxhall, Hummer, and Saab, from the books. The Canadian parts firm Magna has entered an agreement with the German government to purchase Opel (which saves Vauxhall). There has been a series of suitors for the Saturn brand (the brand NOT the products ; -) as well as the Hummer brand.

But, the road to recovery for both Chrysler and GM will be long and fraught with additional peril, especially while the economy continues to under perform. In the long run both will be mere shadows of their former selves.

GM Headed for Bankruptcy?

Bondholders have rejected the latest offer to restructure their debt in GM. Look for a similar conclusion to this as occurred to the Chrysler bondholders.

On the other hand the UAW settled for a much smaller stake (17.5%) in GM than the proposed 39% they were asking for.

GM: The News Isn't Good

Looking at a number of articles concerning GM over the past two days make it clear that things are not going as well as hoped. The notion that GM is going to abandon Detroit as it's headquarters is deeply disappointing. (GM has been ensconced in the Renaissance Center - previously a Ford building - for over 10 years.)

Detroit is fast becoming a third world city, abandoned commercial property and depressed home prices coupled with massive unemployment. And that's a real shame.

'Oh the Tangled Web We Weave . . .'

The NY Times is reporting that GM is seeking an equity stake in Fiat for the turnover of GM's Latin American and European operations.

So Fiat owns Chrysler and GM owns a big chunk of Fiat? Ho boy. ; -)

Chrylser Bankruptcy Proceedings

The bankruptcy judge has ruled against the senior debtors. Look for a quick turnaround and the empty hull of Chrysler to start churning out Fiat products in the next two years (with our tax dollars limping them along in the foreseeable future).

So who wants to loan money to a corporation that may be 'nationalized' now?

I'm still of the opinion that this company will not be profitable in my lifetime. But we're practically giving it away to Fiat. Frankly disgusting.

GM's Penny Stock

Automotive News reports overnight that GM will issue sixty billion (60,000,000,000) new shares of stock that they'll parcel out to the bondholders, gummint, UAW and give out as tickets to be redeemed for prizes at Chuck E. Cheese (well maybe all of the above except the last ; -).

So how much will GM shares be worth this morning? They closed at $1.85 yesterday. GM's current market cap is $1.13B so it looks like they're expanding equity by about 100 times current. Definitely penny stock territory.

Hmmmmm, I'll need to double check calculations after a full dosage of coffee, but if you haven't dumped your GM stock yet - it may be too late.

Another View of those 'Greedy' Hedge Funds

The Business Insider has this article up on the Chrysler Chapter 11 bankruptcy.

If you refuse to honor the debt, or deal with the debt in accordance to prevailing laws, how will you ever be able to borrow money? Who will be willing to lend? That's just what is going on with the auto industry bailouts. Got a union shop? Sorry, have fun attracting bondholders.

However, one of the overlooked pieces of the Chrysler puzzle is how to handle the dealers. There are too many, and there are contractual obligations to the dealers if Chrysler wishes to close them. The bankruptcy should clear some of those obligations.

And I'm afraid a friend of mine who owns a Chrysler dealership, and his employees, will be negatively impacted.

The 'Greedy' Speak

Found on The Business Insider, a communication from the non-TARP debt holders of Chrysler.

The TARP bondholders have some incentive for going along with what the gummint *ahem* suggests. Those debt holders that aren't on the public dole, however, have been frozen out of negotiations regarding debt relief for Chrysler. I especially find these lines informative from their communique:

As of last night’s deadline, we were part of a group of approximately 20 relatively small organizations; we represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler. Combined, these loans total about $1 billion. None of us have taken a dime in TARP money.

[SNIP]

Under long recognized legal and business principles, junior creditors are ordinarily not entitled to anything until senior secured creditors like our investors are repaid in full. Nevertheless, to facilitate Chrysler’s rehabilitation, we offered to take a 40% haircut even though some groups lower down in the legal priority chain in Chrysler debt were being given recoveries of up to 50% or more and being allowed to take out billions of dollars.

Greedy indeed - they end up losing. And the rule of law is being subverted in this process.

The Hypocrisy of Government

This irks me to no end. Gov. Granholm said the following regarding Chrysler bondholders, "On behalf of Michigan, on behalf of the thousands of people who will be affected if this company is forced into bankruptcy, I am publicly asking these hedge funds to not be greedy but to do what the banks have done and what everyone else around the table has done -- take the concessions,"

That's pure political horse manure! The bondholders have loaned money to Chrysler with conditions. They expect some repayment and if they aren't satisfied with thirty cents on the dollar they have a right to force it through bankruptcy to see if they can receive more. They are taking a loss regardless, they CANNOT be faulted for trying to minimize the loss.

If you loan $1,000 to your brother-in-law and he tells you he won't pay back the principal, let alone the interest, and then accuses you of being greedy when you ask for as much of the principal back as possible, you'd have a right to take him to small claims court.

But that won't stop politicians from railing against greed (don't ask them to give up any of the contributions they've received from greedy 'capitalists' though ;-).

Not so Fast!

Well - there may be a fly in the ointment of the Chrysler deal. Those pesky bondholders have turned down the offer from Chrysler to relieve the debt burden. Expect a bankruptcy to unshackle the debt. Then will the Fiat deal still be in place? Stay tuned . . . another episode of this soap opera is sure to happen.

This first came to my attention from Calculated Risk. Seeking Alpha has this story on the potential bankruptcy too. Hat tip to both!

Also read this for an interesting view of what happens if Fiat gets Chrysler.

The Consumation of Chrysler

Well - what a turn of events. While GM is slowly being whittled away into what is hoped to be a sustainable company, Chrysler appears to be off the hook.

They're not really. Word is out that the UAW has approved contract concessions for Chrysler and Fiat has agreed to manage Chrysler (and Fiat still isn't taking on Chrysler debt, AFAIK). What exactly is going on?

Well, it may be best summarized as the invasion of the pod people, Italian style. Basically, Fiat is getting a husk of a company (or the infrastructure of an industrial company) with which it can mold its, Fiat's, reentry into the US market. Fiat will displace the current CEO, Bob Nardelli with a CEO of their own (and who knows what will happen to Jim Press).

What Fiat gets is the ability to build, service and sell Fiats, Alfa Romeos, (and please, please Fiat, bring in Lancias) in the US using the existing structure Chrysler has in place. Expect few if any Chrysler models to survive beyond 2011, possibly some Dodge product will survive, and Jeep should be left pretty much intact (with some of the weaker Jeep product, such as the Compass, going away).

This is a completely different outcome than expected for GM, it basically appears that the US government had enough sense to own only one auto maker. ; -)

The Incredible Shrinking GM

GM held a press conference yesterday morning where Fritz Henderson discussed portions of the latest restructuring plan. As expected Pontiac will be dropped as a brand and the demise of Saturn will be accelerated.

That leaves four brands in the US; Chevrolet, Buick, GMC, and Cadillac. Chevrolet is a full line brand while the Buick, Cadillac, GMC brands together represent a full line of vehicles.

GM also announced that they intend to shrink the number of dealerships from over 6,000 now to around 3,600 in a couple of years. That is a costly proposition.

Discussion of exactly who will own GM ensued. Turns out about 50% will be owned by the government, and 39% by the union (technically the union's VEBA - Voluntary Employee Beneficiary Association). The bondholders are not happy - holders of $1,000 bonds are being asked to accept 225 shares of GM stock for their $1,000 loan. That's not much left at ~ $2.00 per share. Plus they'll not have much of an equity stake (around 10% of the total equity), which means little say in the direction of the company. And yet there is currently $27 Billion worth of outstanding bonds.

Also discussed were the future of Opel and Vauxhall (the venerated English brand that shares Opel platforms). Chevrolet is not a good replacement for Vauxhall or Opel since those brands occupy a higher rung on the status ladder than Chevy.

The Holden company was also talked about. Holden is GM's Australian arm that produces the Pontiac G8 and the last iteration of the GTO. The G8 has received great press and the GTO was one of the best cars GM produced. It had a great chassis, a Corvette motor, and the best interior to date for a GM car. A 2006 GTO can be had at a great price and if you want a rumbly V8 there are very few cars as good as the Holden developed Pontiac GTO.

Reports of UAW Accord with Chrysler

Now Automotive News is reporting that the UAW has reached an agreement with Chrysler, Fiat and the US government regarding contract concessions. We'll have to see if it's too little. too late.

Anyone Need Machine Tools?

This doesn't look good. According to this article, on Seeking Alpha, there are reports from the German press that Fiat will pick up Opel. The machinations around the bailout and potential Chrysler bankruptcy had to have been a factor.

Chrysler will probably end up in liquidation.

Bailout Update

GM is being told by the US Treasury Dept to prepare a bankruptcy plan by June 1. Look for a two GM concept where the 'good' GM goes through one track and the 'toxic' GM goes through another. Saturn and Hummer would be the causalities.

The Chrysler - Fiat deal is making some news this morning also. Seems Fiat may be in the running for a larger Chrysler ownership stake (it was to have been significantly less than 50%) and in a position to put in a new board of directors and a management team.

Brief History of Chrysler Motors

Chrysler is the newest of the old line American 'Big 3' car companies. Chrysler cars hit the market in 1925 built in the Maxwell Motors facilities that Walter P. Chrysler had purchased four years earlier.

Walter P. Chrysler got his start in the railroad business as a machinist and mechanic in Kansas. He later ran Buick and when William C. Durant captured GM (for the second time), Chrysler tendered his resignation. Durant offered him an unprecedented salary and Chrysler was smart enough to accept it.

When he quit GM a few years later he was hired to fix Willys-Overland (for another unprecedented salary) which gave him the wherewithal to purchase Maxwell. Chrysler gave the company's product his name and later added Plymouth and De Soto to the product portfolio.

The Dodge Brothers concern floundered after the death of Horace and John; Chrylser purchased it in 1928. Shortly thereafter Dodge Brothers cars became simply Dodge cars.

Chrysler was known for engineering prowess (first mass produced four wheel hydraulic brakes) and in the mid-1930's was in second place in sales for US car manufacturers.

It moved through the late 1950s and into the early 1970s on the strength of the 'Hemi' engine and muscle cars. But by the end of the 1970s Chrysler needed government guarantees to obtain loans. Enter Lee Iacocca as CEO, and pitchman extraordinare, with the old salt, "If you can find a better car, buy it."

Chrysler survived on the strength of K cars and eventually one of the single most significant vehicles to ever exist, the minivan. (And the story of the minivan's origin is worthy of a novel. The short of it is that Ford originated the idea but didn't follow through.)

In the late 1980s Chrysler acquired the terminally ill American Motors, and quickly (and quietly) disposed of everything but the Jeep brand (and that was the reason American Motors was purchased). Along the way Chrysler picked up Bob Lutz and the Dodge Viper and Plymouth Prowler emerged.

Then Daimler-Benz pulled off a hostile takeover in the guise of a merger and that wasn't pretty for all concerned. (That chapter of Chrysler's history is well documented in the book, 'Taken for a Ride', by Vlasic & Stertz.)

But recently Chrysler has been lost in the wilderness, with wrong and uncompetitive product. In the end, Fiat is interested in the manufacturing capacity of Chrysler (and possibly the Jeep brand name). But if the government insists that Fiat absorb some or all of Chrysler's debt, look for the deal to fall through.

The last thing of any significant value in Chrysler is the Jeep name, and that brand's roots go back to Willys-Overland and without Walter P. Chrysler's ministrations in the early 1920s it wouldn't be there now to tempt a potential savior.