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April 30, 2009

Chrysler Chapter 11 'imminent' (updated)

Rick Moran
Talks broke down between Chrysler and the administration's auto task force last night virtually assuring that the automaker will file for bankruptcy sometime today.

The move won't come without a cost -- both to Chrysler and the taxpayer as this Washington Post story by David Cho, Peter Whoriskey and Kendra Marr reports:

The Obama administration last night planned to send Chrysler into bankruptcy, replace chief executive Robert L. Nardelli and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a reenergized competitor in the global economy.

Government officials clung to 11th-hour hopes last night that bankruptcy could be averted, but talks broke down with Chrysler's creditors. A bankruptcy filing could happen as soon as today.

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.

Under the administration's detailed court strategy, 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. 

Chrysler will now be just another cog in "Uncle Sam Motors" with Ford Motor Company desperately resisting federal bail out money in order to maintain their independence.

We'll see how long that lasts.

Ed Lasky adds:

With the UAW owning huge percentages of both Chrysler and General Motors, has anyone questioned the fringe benefits politically to the Democrats. The unions will be in a prime "bargaining" position, able to extract vast amount of money that might otherwise gone to shareholders, people who loaned money to the company, or technological development funding to actually make affordable cars. Taxpayers will be on the hook for billions of dollars forwarded to these companies. Money is fungible -- how much of this money will move into the accounts that fund union political activities? Or go towards high salaries of union officials?

This risk is exacerbated by the fact that the Obama administration has rolled back the requirement that labor unions and their leaders report information about their finances and compensation.

Update - some details from Justin Hyde and Greg Gardner or the Detroit Free Press: 


The government will take a stake in the company and have a say in helping Chrysler and Fiat select a new board of directors. Chrysler Chief Executive Robert Nardelli has said he would step down after the partnership was cemented.

The decision to take Chrysler into bankruptcy came after three lenders -- Oppenheimer Funds, Perella Weinberg Partners, and Stairway Capital - balked at the original $2-billion offer, as well as an increase of $250 million from Treasury on Wednesday evening. The White House and Michigan's congressional delegation pressed the holdouts to agree by 6 p.m. Wednesday, but no deal was reached.

"A group of investment firms and hedge funds chose not to make sacrifices. In fact they wanted to qualify for an injustified government bailout," Obama said. "Some demanded twice the return other investors would have received."

Class warfare a notable theme here.

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