Chrysler to File for Bankruptcy

[garbon]

Detroit News

[Savonarola]

Where's the article from Sav?

It has a frothing-at-the-mouth quality that might be expected of the Weekly Standard.

Sorry, I thought I had included the by-line.  Garbon is right it's an editorial from the Detroit News by Daniel Howes, one of the automotive columnists.

[The Minsky Moment]

Detroit News

whoever wrote doesn't have a clue what he or she is talking about.

Except the part where Dingell is made to look like a fool.

[DGuller]

As a slight aside, what is there in Chrysler that could still be worth saving?  Their distribution network?  Their cars are pretty much uniformly junk on wheels.

[Savonarola]

As a slight aside, what is there in Chrysler that could still be worth saving?  Their distribution network?  Their cars are pretty much uniformly junk on wheels.

Then they should workwell with Fiat.   

[Valmy]

Both Automakers are doomed and we are tossing money to keep alive a corpse before it goes into rigor mortis.

We should allow both GM and Chrysler to die and let their remaining competitors buy up whatever assets they had worth saving.

I mean that is going to happen in a few years anyway so why are we working so hard and spending so much money to make sure they are liquidated in 2011 instead of 2009?

[Berkut]

Both Automakers are doomed and we are tossing money to keep alive a corpse before it goes into rigor mortis.

We should allow both GM and Chrysler to die and let their remaining competitors buy up whatever assets they had worth saving.

I mean that is going to happen in a few years anyway so why are we working so hard and spending so much money to make sure they are liquidated in 2011 instead of 2009?

Nah, we should pump more billions than the companies are actually worth into them. We can give the UAW employees jobs waving the rotting, pestulant arms around so people might think they are still alive.

[Berkut]

Both Automakers are doomed and we are tossing money to keep alive a corpse before it goes into rigor mortis.

We should allow both GM and Chrysler to die and let their remaining competitors buy up whatever assets they had worth saving.

I mean that is going to happen in a few years anyway so why are we working so hard and spending so much money to make sure they are liquidated in 2011 instead of 2009?

Nah, we should pump more billions than the companies are actually worth into them. We can give the UAW employees jobs waving the rotting, pestulant arms around so people might think they are still alive.

Think Obama as the Parrot shop owner from Monty Python.

"There! It just moved!"

[DGuller]

Both Automakers are doomed and we are tossing money to keep alive a corpse before it goes into rigor mortis.

We should allow both GM and Chrysler to die and let their remaining competitors buy up whatever assets they had worth saving.

I mean that is going to happen in a few years anyway so why are we working so hard and spending so much money to make sure they are liquidated in 2011 instead of 2009?

I trust JR when he says that letting GM die and be sold piece by piece would just not work out in practice, due to complicated collateral situations and such.  I do think that GM has a lot of useful stuff, and may be worth a lot once purged of toxic crap weighing it down.  With Chrysler, on the other hand, I just can't think of any redeeming quality.

[Iormlund]

GM may have some useful stuff, but I can't help but wonder if it's worth much in the current situation. Every manufacturer is cutting production. It doesn't make sense for Honda or Toyota to buy another plant in these circumstances.

[Berkut]

GM may have some useful stuff, but I can't help but wonder if it's worth much in the current situation. Every manufacturer is cutting production. It doesn't make sense for Honda or Toyota to buy another plant in these circumstances.

Nor would they want one of those plants anyway. Probably MUCH better off building their own somewhere that they can get a good local deal on taxes and labor. Just like they do now.

All the union workers crying about their work going to Mexico...uhhh, well, apparently it isn't necessary that this kind of work be done in other countries - they manage to do quite a lot of it in Tennessee, for example. They might want to look elsewhere, and a lot closer to home to find the reason they are unemployed.

[Barrister]

Nor would they want one of those plants anyway. Probably MUCH better off building their own somewhere that they can get a good local deal on taxes and labor. Just like they do now.

And then have Michigan wind up with another dozen packard plants, sitting empty and vacant for 50 years and falling into disrepair so great the fire department fears to enter?

[Berkut]

Nor would they want one of those plants anyway. Probably MUCH better off building their own somewhere that they can get a good local deal on taxes and labor. Just like they do now.

And then have Michigan wind up with another dozen packard plants, sitting empty and vacant for 50 years and falling into disrepair so great the fire department fears to enter?

Well, if you can talk Toyota into taking over those plants because we don't want them to fall into decay, go for it. Why would they though?

Really, why would any business in their right mind volunteer to deal with the nightmare that is the Detroit area, and the entitlement culture there?

[Savonarola]

Nor would they want one of those plants anyway. Probably MUCH better off building their own somewhere that they can get a good local deal on taxes and labor. Just like they do now.

And then have Michigan wind up with another dozen packard plants, sitting empty and vacant for 50 years and falling into disrepair so great the fire department fears to enter?

Never change a winning strategy.

Even the big 3 often found it easier to build new plants in rural communities rather than retool existing plants.   Detroit's major advantages as a hub of both rail and water traffic were eliminated with the creation of the highway system, and rural communities had many attractive benefits.  It's easier to get the necessary land, get better tax deals, and it was politically prudent to move the defense work to certain districts in the south.  In addition, even though the American auto companies had to pay a Detroit wage in these rural communities; they were able to avoid the problems caused by the more militant unions in Detroit; things like hate strikes, wild cat strikes and shop floor sabotage occurred far less often outside Detroit. 

Unfortunately this caused a number of our social problems here; for some reason black people didn't want to move to Marion, Indiana.  I can't think why...

[Hansmeister]

A blogger named Verum Serum rases some interesting questions:

The Deferred Prosecution Deal the White House Doesn't Want You To Know About
Morgen on June 9, 2009

Late in the day yesterday, the Supreme Court stepped in and at least temporarily halted the sale of Chrysler to Fiat. A handful of creditors, including the pension fund for the State of Indiana, have challenged the legality of the transaction on the basis that unsecured creditors (namely, the UAW) were given preferential treatment over secured creditors. Ironically, it was Justice Ginsberg who at the 11th hour ordered the sale to be put on hold. But it remains unclear her exact reason for doing so and whether the Supreme Court will actually take up this case for review.

Obama's auto bailout "task force" has been aggressively pushing the Chrysler-Fiat deal through the bankruptcy process, claiming that any delay in finalizing the transaction could cause the deal to fall apart since Fiat has the right to back out if the deal is not closed by June 15. However, according to news reports today, a spokesman for Fiat has said that they "will never walk away" from the deal even if the June 15 deadline passes.

This struck me as a little odd given the definitive nature of this statement, which seems to clearly contradict the sense of urgency that has been fostered by Chrysler and it's benefactors in the Administration. Perhaps it can be explained by the fact that Fiat is receiving a 20% equity stake in a restructured Chrysler while contributing nothing (that's right - $0). But I wondered whether there still might be more to this. Especially in light of a report in the Wall Street Journal over the weekend that claimed that the Obama Administration had forced the Fiat deal on Chrysler. Despite reservations on the part of Chrysler management regarding Fiat's financial condition, and Fiat's failure to disclose information that had been requested. According to the WSJ report, an unnamed Chrysler advisor even went so far as to express concern that the perception might ultimately be that they "were in bed with a shady partner", meaning Fiat.

There is more truth to this statement than perhaps he knew, and it apparently applies not only to Fiat but to those in the Administration behind this deal as well. It turns out that back on December 22, right before Christmas, the U.S. Justice Department reached a settlement of sorts with Fiat and a group of affiliated companies. Fiat apparently had been under DOJ investigation for their participation in the UN "Oil for Food" scandal dating back to the early to mid 90's (updated: and continuing through 2003). I called this a "settlement of sorts" because in actuality it is a deferred prosecution agreement, where the DOJ filed but deferred prosecution against Fiat on charges including wire fraud, falsification of books and records, and conspiracy.

In exchange for Fiat signing a "Statement of Facts" admitting to and accepting responsibility for these crimes, and remitting a penalty of $7 million to the U.S. Treasury, the DOJ agreed to defer any further prosecution for a period of 3 years. Importantly, during this 3 year period Fiat is required to "cooperate fully with the Department and any other authority or agency, domestic or foreign, designated by the Department" in allowing the U.S government full access to their books and other financial records to verify that no further corrupt or fraudulent activity has taken place. If, and only if, they are deemed to have been in full cooperation with no additional violations has the DOJ agreed to move to actually dismiss the underlying charges.

Gee, do you think this arrangement just might give the U.S Government a little bit of leverage in dealing with Fiat related to the Chrysler transaction? Could it be any more obvious that the DOJ was pressured to reach a settlement agreement with Fiat in order to clear the decks for the Fiat-Chrysler deal? A deal which was first announced in mid-January, just weeks after the Deferred Prosecution Agreement was finalized. Could it be any more obvious that the timing of this settlement, right before Christmas, was intended to draw as little attention as possible? (It was very lightly reported, primarily by the international press. This London Times article was one of the only examples I found in the mainstream news media).

Now I realize that December 2008 was in the waning few weeks of the Bush Administration. So if the inferences I've made are correct, this would mean that officials in the Bush Administration were complicit in working out the terms of this deal in order to clear the way for the Chrysler deal. However, given the extent to which the Bush White House was in coordination with the Obama transition team, I very much doubt that this was done without the knowledge of Obama's economic advisers and likely Obama himself.

And it's beside the point. The bottom line seems to be that the U.S Justice Department acceded to political pressure to reach an agreement with Fiat, which is an inappropriate administration of justice no matter who was complicit in the arrangement. And as far as I'm concerned, it calls into serious question the legitimacy of the entire Fiat-Chrysler deal itself. We have a U.S. Administration actively pushing for AND FINANCING a transaction between a U.S. auto maker and a foreign auto maker who is under a deferred prosecution arrangement for corruption and fraud. I am tempted to make a joke about the fact that the resulting company would be controlled by a 75% ownership stake between Fiat and the UAW (talk about "shady partners")...but there is really nothing funny about this given the amount of tax payer dollars that have been spent bailing out Chrysler. Someone has some explaining to do.