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June 10th, 2009

Update1 What’s Going On With Chrysler?



UPDATE1: A bankruptcy court judge ruled in favor of Chrysler yesterday, allowing the automaker to proceed in closing the 789 dealerships. Judge Arthur Gonzalez ruled against the closed dealerships, rejecting the notion that dealers would be a greater asset to the company open rather than shut down. The closed dealers will have an opportunity to file damage claims against Chrysler within a “within a certain time frame yet to be determined, the judge said.”

Separately, the U.S. Supreme Court also ruled in favor of Chrysler and Fiat, allowing the Italian automaker to proceed in purchasing Chrysler assets. The high court ruled against a group of Indiana pension funds who claimed that Chrysler’s bankruptcy proceedings were unlawful.

What’s Next?

Reports claim that Chrysler is already preparing to instate Fiat’s Sergio Marchionne as their new Chief Executive. Yet will one man and a few new Italian automobiles be able to resurrect this company? We’ll see.

Original Post Published on 6/09/09: The White House’s strategy for Chrysler’s speedy reorganization isn’t going nearly as planned. The U.S. Supreme Court has, at least temporarily, halted the sale of Chrysler LLC to Fiat SpA. Furthermore, attorneys representing the eliminated Chrysler dealers were back in bankruptcy court today appealing the automaker’s decision to end their contracts:

The U.S.-brokered sale of Chrysler, by forcing senior secured lenders to write down their loans to the auto maker, broke with longstanding tradition concerning rights in a bankruptcy: Senior secured lenders usually are paid in full before lower-priority creditors receive anything. This time, a United Auto Workers retiree health-care trust got a 55% equity stake and $4.5 billion note for its about $10.5 billion unsecured claim while Fiat stands to get an initial 20% stake.

Law experts say that the Supreme Court’s statement regarding the sale delay was so brief that the next move is presently unclear:

It only said the transaction is on hold “pending further order of the undersigned or of the court.”

What’s your prediction? What will happen to Chrysler?

Despite their future uncertainty, Chrysler executives seem to be sticking by their decision to slim down their dealership base. Today the automaker announced that they will guarantee that to those losing their franchises “that it will find others to take their unsold vehicles and extended a deadline to transfer the cars and trucks.” The dealers will have until June 15 to sign the paperwork approving the transfers.

The gesture did little to quell the eliminated dealers’ disgust with their former boss and the president:

“Isn’t it a great country when a company can change its name and negate its debts,” said Aaron Beecher, 87, owner of ABC Motors, which sells Jeep and Chrysler vehicles in Valley Stream, New York. “It’s all Obama.”

At this juncture the consensus seems to be that the U.S.-brokered sale of Chrysler to Fiat, as part of their bankruptcy restructuring, was unlawful, and in the least, unfair. As we stated earlier, the Supreme Court’s vague statement leaves the conclusion of this matter up in the air.

While Fiat CEO Sergio Marchionne said the Italian automaker plans to stick by Chrysler, if the sale doesn’t in fact go through and Chrysler goes under, it will mean the loss of thousands of American jobs. Some feel the U.S. government got the automaker into this mess, and they deserve to get them out.

What should happen next with Chrysler?

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2 Responses to “Update1 What’s Going On With Chrysler?”

  1. George Says: June 9th, 2009 at 4:50 pm

    Regardless of the outcome, the Supreme Court must reaffirm the doctrine that secured creditors are not only superior to unsecured credit holders, but also that if the bankrupt party cannot pay the creditor, then the creditor has a right to repossess their collateral. Failure to reaffirm the full rights of secured creditors will slam a deadly torpedo into an already extremely shaky USA economy USA government ship–I would fear that investors and creditors would flee making loans to USA borrowers.

  2. Tim Manni Says: June 10th, 2009 at 10:09 am

    Hey George,

    Now that we know the outcome, it seems your worst fears have been revealed. There’s a real growing sentiment out there that the government believes that they have the right to do anything — no matter the preexisting laws, rules, or regulations. Your fear that “investors and creditors would flee making loans to USA borrowers” is a legitimate one. We’ll have to monitor the consequences of these court rulings.

    Thanks for commenting, hope to hear from you again soon,

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