Judge Arthur Gonzales sitting in the U.S. Bankruptcy Court for the Southern District of New York will determine starting tomorrow morning if the sale of virtually all of the good assets of bankrupt Chrysler LLC to Fiat SpA will proceed. If he doesn’t approve, the company will liquidate, taking with it any hope of preserving U.S. manufacturing jobs at the once proud Michigan automaker.
Chrysler’s largest creditors, 98% of them, support the plan. The United Auto Workers Union and the Canadian Auto Workers Union have made once unthinkable concessions to support the plan. And the judge, thus far, has moved the case along the lines that members the U.S. Treasury’s Auto Task Force outlined in a background briefing to media on the morning that President Obama made the restructuring announcement and Chrysler LLC filed for court protection. Pundits who said it couldn’t be done swiftly have, thus far, been proven wrong.
Political momentum and legal logic for Chrysler and GM
With Treasury and President Obama supporting the latest version of a restructuring plan that Chrysler has put together, it is my bet that a new Chrysler Group will emerge from court protection soon. Then the really hard work begins. It is by no means certain that Chrysler and its Dodge and Jeep brands can generate enough sales to remain viable in the toughest global car market since the Great Depression. And the Fiat small cars and engines that are its $10 billion contribution to the plan are years away from production reality.
Some creditors and dealers remain the only significant objectors to the Chrysler sale. However, the political momentum and legal logic of the Chrysler case argues for going forward. Yes, it is a bet, and yes we might just be prolonging the agony, but dissolution right now appears to be a worse choice.
The same political push and legal logic are also directly applicable to a pending GM bankruptcy filing, which could come at any time. GM’s debt-for-equity swap for $27 billion worth of bonds expires this midnight, and its bondholders taking the same “no-way” approach that Chrysler’s did. (more…)