One of the “Big Three” automakers — Chrysler LLC — has now filed for Chapter 11 bankruptcy. Here is an excerpt from a Bloomberg story on the filing:
“Chrysler LLC, the smallest of the Big Three U.S. automakers, filed today for bankruptcy protection in New York to streamline operations and shed debt in a reorganization that includes Italy’s Fiat SpA as a partner.
“The iconic automaker, which survived a near-death experience in 1979, missed a U.S. government deadline to come up with a restructuring plan by today that was rigorous enough to avoid bankruptcy and qualify for more bailout aid. The carmaker tried to negotiate an alliance with Fiat, reduce $6.9 billion in secured loans and cut $10.6 billion owed to a pension fund. Some lenders refused to slash the debt to $2.25 billion.
“The carmaker and the government plan to use the bankruptcy process to revitalize Chrysler by putting its best assets, such as its Jeep and Dodge Ram brands, in a new company that wouldn’t be burdened by current costs and debt. A slimmed-down version of Chrysler, armed with Fiat’s small-car technology, would emerge from such a process, giving the carmaker a “new lease on life,” U.S. President Barack Obama said today.
“Bankruptcy could do a lot of good for Chrysler” by allowing it to “shrink down to the size it needs” quickly, said Stephen Lubben, who teaches bankruptcy-law at Seton Hall University School of Law in Newark, New Jersey. “Fiat has shown that it knows how to turn around a troubled business.”
“Bankruptcy can involve uncertainty and delay. Dissident creditors intend to object to the company’s reorganization plan, a person familiar with their thinking said. That might thwart President Barack Obama’s goal of a “surgical” bankruptcy that would put a viable carmaker quickly into the market.”
Now the question becomes: “What happens with GM.” Various plans are under consideration there.
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{ 4 comments… read them below or add one }
“Bankruptcy could do a lot of good,” spoken like a true number crunching “expert”.
As Chrysler pares its ranks and bankrupt suppliers, they are in essence firing their best customers.
As they continue to run suppliers, dealers and retirees into bankruptcy, while hiring people that cannot afford to buy the cars they make, they will continue to slide downhill.
Next step is total dissolution, and I believe it will happen within 3 years.
The cramdown rule was defeated in the senate yesterday, but the white house and democrats would like it to be passed. What kind of effect, if it does pass, would it have on bank stocks in the coming year? It allows judges to re-write mortgages in bankrupty cases, even reducing principle.
Hi Mike,
You talk about the US Dollar being FIAT currency. Nothing backing it. Now I read where Chrysler will become apart of FIAT. Is this an omen or irony or what? Does this mean there will be nothing backing the Chrysler/Fiat union? Oh, the irony of it all, will it ever end?
Why didn’t we have PUTs on the car companies?