Obama puts pressure on Chrysler

Is bankruptcy in store for the venerable carmaker?

By , Staff writer

  • close
    A Chrysler auto dealership in New York Thursday. The Treasury is preparing a Chapter 11 bankruptcy filing for Chrysler LLC that could come as soon as next week, The New York Times reported on Thursday, citing people with direct knowledge of the matter.
    View Caption

It’s a high-stakes staredown, with the fate of an American icon at stake.

The Obama administration appears to be trying to put pressure on Chrysler’s lenders by preparing to put the venerable US automaker into bankruptcy.

Debt holders of the firm earlier this week rejected a government offer to allot them about 22 cents on the dollar, plus a five percent stake in a new, streamlined Chrysler. The lenders think they should get upwards of three times more -- and some economists critical of the Obama approach to the auto firms agree.

Recommended: Could you pass a US citizenship test?

“The negotiating process orchestrated by the Obama administration provides the clearest example of why politicians should stay out of bankruptcy proceedings,” writes University of Maryland economist Peter Morici in an analysis of Chrysler’s situation.

A bankruptcy filing for Chrysler could come as early as next week, according to a report in the New York Times. Retirement and healthcare benefits for members of the United Auto Workers would be protected in the deal, according to the Times.

UAW leaders would only say that they are working with the Obama administration, and that no deal was yet final. “We are continuing to work toward an agreement that will be in the best interests of Chrysler workers, retirees, and the communities where the company does business,” said UAW President Ron Gettelfinger in a statement.

The proposed alliance between Chrysler and Italy’s Fiat reportedly would go forward during bankruptcy proceedings.

Chrysler’s frontline lenders include Citigroup, JP Morgan Chase, Morgan Stanley, and several hedge funds, among other financial institutions. To the firm’s defenders, they are a rapacious pack of buccaneers who are trying to extract every last dollar they can from the American taxpayer.

“These debt holders were offered fair market value for their debt, and the banks have responded by asking for a windfall,” said Rep. Gary Peters (D) of Michigan, whose district includes Chrysler’s Auburn Hills headquarters, in a statement. “It is extremely disappointing that while other stakeholders have agreed to work with President Obama to advance Chrysler’s restructuring, financial institutions that have already taken billions of dollars in taxpayer support are refusing to do the same.”

Peter Morici sees things differently. Chrysler has efficient factories, according to his analysis, that simply suffer from few good designs to build. In addition, Chrysler’s Jeep trademark is worth quite a bit, both due to its vehicles and its value as a brand applied to radios, tools, toys, and other merchandise.

If Chrysler were broken up by a judge in a Chapter 7 liquidation, lenders could walk away with assets worth up to 65 cents for each dollar of debt, according to Morici. By threatening to enter Chrysler into Chapter 11 bankruptcy reorganization, instead, the administration may be trying to protect the interests of its union allies.

“Political considerations keep Obama’s team from imposing on the union the conditions necessary to make Chrysler viable, and it is using sovereign power to force the banks to take less than they are due to benefit the union,” writes Morici.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...