Chrysler, one of the three pillars of the American auto industry, will file for bankruptcy today after last-minute negotiations between the government and the automaker's creditors broke down last night, an Obama administration official said.
U.S. officials had offered Chrysler's secured lenders $2.25 billion in cash if they would agree to writedown the $6.9 billion in secured debt that the company owed. But a small group of hedge funds refused the 11th-hour deal, forcing an imminent bankruptcy.
What, those investors don't want to take a massive loss on their investment? Go figure. Oops, I meant to say 'how selfish of them':
An administration official this morning expressed disappointment, saying the holdouts had failed to "do the right thing," but that "their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders, nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward."
That's right, we're all supposed to sacrifice for the greater good. Except, in this case, the 'greater good' is actually the good of the nanny state government (who will own the company) and the unions (who will control the company). What a great win for the other 90% of the country, huh?
The U.S. government's attempt to save the automaker amounts to another extraordinary intervention in the economy and a landmark event in the history of the American auto industry.
IT IS NOT THE RESPONSIBILITY OF THE GOVERNMENT TO SAVE ANY PRIVATE COMPANY!!!
Under the administration's detailed plan for a "surgical bankruptcy," ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding.
Company and government officials had feared that a bankruptcy would stain the brand, shake customer confidence and erode sales, but the administration said it would seek to use the process to create a new Chrysler company. Its ownership would be divided, with the company's union retiree health fund receiving a 55 percent stake, Fiat would claim as much as a 35 percent share and the United States would take 8 percent. The Canadian government would receive two percent.
By the way, Fiat is floundering in its own right:
With Fiat amassing net debt of 6.6 billion euros ($8.6 billion) and its bonds cut to junk last month by Standard & Poor's, Marchionne may have to back away from his pledge and put up cash to reach a deal with Chrysler by the U.S.-government imposed deadline of April 30, analysts say.
Fiat, Italy's largest carmaker, reported its first quarterly loss since 2004 today even as it reiterated a target of earnings before interest, tax and some items of more than 1 billion euros this year.
Why does anyone think it's a good idea to let a failed Italian car company run a failed American car company? But back to the WaPo article and Chrysler...
The automaker's current majority owner, the private-equity firm Cerberus Capital Management, would have its holdings wiped out.
Thus, the resistance. Duh.
During the bankruptcy, the governments would provide about $4 billion in new funds, with 80 percent coming from the United States and 20 percent from Canada, which hosts a number of Chrysler operations. As the company emerged from its reorganization, the United States would provide roughly another $5 billion, with more coming from Canada, the sources said. The sources warned, however, that the figures were fluid.
So, of the 'Big 3' automakers, Obama would own two of them. I predict major sales increases for Ford. I've never really liked Fords before, but I'm thinking much more favorably of them now...
Particularly striking to some economists and historians is that the plan turns over ownership of a major U.S. industrial company to an employee-run trust, a deal that is "unprecedented on this scale," according to Harley Shaiken, a University of California at Berkeley professor and expert on unions.
The government plan also calls for ensuring that Chrysler maintains substantial U.S. manufacturing operations. It requires that at least 40 percent of company sales volumes remain manufactured domestically, or for the company's total production in this country to remain at least at 90 percent of its U.S. production last year.
"Anyway you cut it, the union is going to be a major presence at the company," Shaiken said.
Of course it is. Just like with GM, the union is likely going to control operations from top to bottom (within Obama's authority, of course).
How's that for hope-n-change?
The single biggest thing that we need to take from this is that this is precisely what the Right has been warning about all along: liberalism fails. Remember the initial objections to bankruptcy? The lawful debt holders would take it in the shorts, we can't possibly allow the stigma of a bankrupted company, a government bailout was the only hope, and so on. Well, look where we are now...Obama intervened in private enterprise, threw billions of dollars in taxpayer money into a black hole, and the company is still going into bankruptcy. And that's after wasting a whole bunch of our tax dollars.
Of course, if you understand that Obama's actual objective was to take over the company and re-make it, it's actually a smashing success. So is GM. But is this really the way you want things to work in America? I mean, seriously, this is normally third world tinpot dictator stuff. Are we going to put up with it here?
There's my two cents.
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