Wait. He who would heal the planet can't heal Detroit?
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.
But not to worry. It's just so they can get more money from us.
Add up all the figures mentioned in the story.
Fiat, 20% now, could be up to 35%.
US treasury, 8%.
Canadian and Ontario govt, 2%.
Total revealed = 45%.
So the other 55% goes to ... the UAW?
I don't get it. How can the US Government (and apparently the media) know who will own what during and after this bankruptcy filing? And if so, why was everyone "scared" into thinking bankruptcy was so bad? And consequently, why didn't this process simply start in December when they initially asked for $?
While somewhat rhetorical, can anyone address these questions?
Dave
Most people understood months ago that any bailout to Chrysler was good money after bad. That being said, I believe that Bush, McCain, Clinton or Obama would have done the same out of necessity. Imagine the fallout today if the government hadn’t attempted something. Can you say political suicide? IMO, the 101st day of Obama’s administration is his best so far.
I can still remember the days when going bankrupt was not a positive thing.
Second government bailout for Chrysler. First for GM. Wonder when the third and second, respectively, will be? Only Ford will escape Obama's auto power play it seems.
So the bond holders get 33 cents on the dollar while the equity holders aren't wiped out?
Do the obama commies not know the hierarchy of capital? Senior Bonds come first, then subordinate bonds, then debentures, then prefs, then common. The unions do not fit into this mix as they offered up no capital.
Which of their arses are they pulling these figures from? The "out of bankruptcy" numbers don't seem to have anything at all to do with the ownership structure or the structure of legal claim to any assets.
I guess with the first African president, the US has turned into an Afro-Marxist Kleptocracy.
The bondholders and taxpayers are getting the shaft in favour of union hacks.
If Chrylser had been allowed to fail a generation ago, what would have been the cost then as compared to now?
Would GM and, by extension, Ford, be in as sticky situations as there are now? Granted, Ford is holding its own but if there had been one less producer for the last 20 years or so, perhaps Ford's as well as GM's respective balance sheets would be in better shape as a result?
What would have been the effects on the Earth's environment had Chrysler gone under? Sure, the others would have ramped up production to meet demand but there would have been fewer auto plants overall and therefore less impact on the Earth.
Can, or should we, chalk this up to well intentioned government interference in the market just making a bad situation worse?
I think so.
Tsk, tsk,
Kate, can't you see that with enormous levels of carbon tax and forced reversion to the stone age we can all "save the planet" together, of course, not without the proper guidance of our holy one and his disciples.
Now Chrysler, we all know that was Bushco's fault and it will only take a full scale leap into the socialist abyss, er, paradise, to cure that one.
I don't know who I dislike more, the management of Chrysler who are wearing knee pads full time or that stupid Kenyan who is forever meddling in private business.
They are both scum who have not learned what makes America wealthy, safe and free.
My mistake, the common shareholders get nothing (which is the usual case in bankruptcy.)
So, the bond holders and taxpayers are getting royally screwed in favour of union incompetence.
The CDN gov gets to pay $2billion for a 2% stake.
I'm guessing the company won't have a $100 billion market cap after this is over...
I also doubt the union is owed a 55% stake ($55 billion if Ontario's ratio of ownership is used as a basis for comparison.)
The Obama commies must be stopped. There must be some real Americans left on the supreme court. I don't think even the moderate (which translates to soft-left) judges can let this pass.
What I don't understand is why Ontario and Canadian taxpayers are on the hook for an American company's impending demise.
There will be market resistance on this, trust me.
This is all for nothing anyway. The only people buying cars are buying Jap, Korean or Euro. Who actually believes Chrysler or GM will come out of this healthy and wise. Why take the risk?
That is why there are other car makers, so we can choose the best vehicle and the best company.
Does anyone thing that Chrysler or GM are the best companies? or have the best vehicles?
If you do, it's because you are in CAW or UAW.
There, found it.
"In exchange, the health fund must give up its claim to much of the $10 billion that Chrysler owes it"
So, Dem-Leftard math.
Cdn gov: 2% for $2 billion.
US gov: 8% for $8 billion
Union: 55% for $10 billion.
Fiat: 20-35% for taking the company for free. Although they'll have to share it with the union. If I were them, I'd rather they didn't give it to me. It could be the most expensive freebee since Obama stole the banks for forced TARP money half the banks didn't need nor want.
Bondholders (who are supposed to be paid in full before the next lower class gets a penny): 33 cents on the dollar.
The People's Banana Republic of America. Where capitalism and the western way of life went to die.
The very definition of Fascism is "government control of the means of production"
Government control (and at least partial ownership to facilitate control) is well underway throughout the economy.
Here we go.
The old cycles of history continue. When (and how) will we ever learn?
*sigh*
Looks like many of us will be "going John Galt" in the coming storm. I just wish we didn't have to.
.
Ural,
It still isn a good thing. But them going bankrupt might be the only way the negligent capial providers will learn to exercise their power before and not after disaster.
Maybe if the shaeholders and bondholders had stiffened mgt's spine a little more about the path they were on we wouldnt be here.....
Union concessions and bondholder shaves...two very good things, albeit silver lining kind of things....
Do the obama commies not know the hierarchy of capital? Senior Bonds come first, then subordinate bonds, then debentures, then prefs, then common. The unions do not fit into this mix as they offered up no capital.
- Warwick.
They're STAKEHOLDERS dude. And if they do know the hierarchy, they don't care. They aren't capitalists. Of course, neither was Bush. Neither is Buffett. Hank Paulson sure wasn't. Nor Greenspan.
Appreciate your "commies" remark. Since way before the election I felt Obama was a marxist. I'm relaxing a bit on that now -- I'm fine with Mussolini-style fascist!
Am reminded about what a portfolio manager told a seminar I attended many years ago about investing in Russia. The share registries were often done in pencil. Your holdings could simply be erased. No kidding.
I never thought this would happen to me, but I have to say that the last six months have made me like Ford more and more. So much so that it is the only American car/truck I would buy. It's only a matter of time before GM, with prodding from the new Comrade Executive Officer, releases a "revolutionary" people's car ala the Nazy VW.
"I can still remember the days when going bankrupt was not a positive thing."
'tis now. Perhaps the Union will negotiate now, in survival mode no less.
PhilM, The first bailout of Chrysler was successful. Iacocca, the CEO of Chrysler at the time, paid the government back every cent with interest and the US gov't made money in the deal. (It's interesting how in an article I read by Conrad Black about the auto industry, Black noted that Trudeau wanted to buy Chrysler at the time - for basically nothig - turn it into a Canadian company and then make it public again with most ownership being Canadian.)
Warwick, the UAW pension fund is Chrysler's biggest creditor. Chrysler owes it over $20B. Chrysler has been underfunding the pension plan for a very long time. Chrysler and the UAW agreed to exchange debt for equity which makes the UAW the largest owner. If Chrysler went bankrupt and everything was sold off the UAW would be getting all the proceeds anyway but it wouldn't be much and there would be no future for large numbers of current workers. So it is better to swing a deal with hopes that Chrysler can turn around and increase the companies equity and maybe some day the UAW equity might approach the $20B that they were owed.
So Unions, Govt, and foreign concerns, get equity, while investors are expected to take a bath? Brilliant way to encourage economic growth I say. Make investors choke down a near total loss on a failed concern, when by law they are due a much better deal. Why do you need investors when you have an omnipotent, omniscient, benevolent, government to decide which business ventures, deserve investment, should succeed, should fail; all while running them from a central planning office headed by the appropriate business "Czar"?
If these companies can now only survive by absorbing and burning taxpayer dollars, shouldn't taxpayers be getting cars in exchange? In fact isn't this the only way that Chrysler is going to move any product going forward? I can't wait to see what it is going to cost to "save" GM again for another two months. I expect this will only go on so long before the end comes.
The only way these bailouts were ever going to work was if the government gave coupons for $25,000 to individuals to actually buy the cars of the Detroit three. Bailing out the Companies directly does nothing to sell a single car, and the biggest problem is that they aren't selling cars. Consumer confidence is in the toilet, and since car loans can go up to seven years now, who can look that far down the road and still believe they will have a job? Toyota and Honda sales are suffering as well, in fact Toyota is leasing an ocean liner to store unsold product because fields and warehouses are already full. Economic uncertainty has hit all auto manufacturers around the world. The biggest problem with Chrysler and GM is a broken business model which is relatively unchanged from the 1950s. Too many similar products and not enough refinement. Quality and reliability issues result as none of the known problems are addressed, but new product is in development.
By contrast, Ford makes fewer offerings, but seems to be working at getting the bugs out of them. Well, and they aren't taking our money. This was a smart decision by Ford which has made quite a few customers who prefer domestics to look closer at Ford.
Maybe I'm wrong about this, but here goes anyway : either this bailout is deliberately designed to fail, or the people running the show are not nearly as smart as we think they are. But it is nice to know that Chapter eleven is another step in squeezing more money out of the beleaguered taxpayers.... let the second round of bailouts begin, but let's not go expecting a different result, because that wouldn't be sane.
cconn
do the math. First off, in bankruptcy, the figure the company owes the pension is zero. Bondholders have first claim to assets.
Pensions have zero claim above that which is in the pension plan. If it's underfunded, too bad for them. The fault for companies ability to underfund is the Dems and the Unions who pushed for it (and Bob Rae in Ontario and the CDN unions who did likewise for Ontario registered Companies.)
Second, the story quoted 10, not 20 billion. Even if we used your figure of 20 and compared that to the CDN and US taxpayers outlay of $1 billion per percent, that's still 20%, not 55% even presuming all other groups with actual, legal claims to the company have been paid.
Thirdly, it rewards the poor behaviour of the unions. The common shareholders (as represented by management) will be wiped out, their executives are gone but the union is not. So accountability is absent for union hacks who end up with a profit on their incompetence, rent-seeking and graft. Both the common shareholders (management) and the unions should be wiped out.
If I were running a bond-rating agency, I'd be downgrading EVERY SINGLE US ISSUE. The law no longer protects bondholders. In fact, the law no longer seems to exist.
Me No Dhimmi:
Since way before the election I felt Obama was a marxist. I'm relaxing a bit on that now -- I'm fine with Mussolini-style fascist!
I appreciate the gallows humour, but there will come a time when this is not longer funny.
Kevin F:
Point of detail:
I believe Chapter 11 is Bankruptcy protection and Chapter 7 is Bankruptcy.
Me No Dhimmi:
Since way before the election I felt Obama was a marxist. I'm relaxing a bit on that now -- I'm fine with Mussolini-style fascist!
I appreciate the gallows humour, but there will come a time when this is no longer funny.
Kevin F:
Point of detail:
I believe Chapter 11 is Bankruptcy protection and Chapter 7 is Bankruptcy.
I meant that I'd downgrade every single issue in the entire US. With no ability to enforce a contract, one of the central tenants of the modern economy is void. So, your bond's likelihood of being paid is now diminished.
ALL US bonds are junk now.
Bond Holders are not doing this to get more taxpayer money, which if the Obamanauts had not provided would not exist now would it, what they want is equitable settlement, the Unions getting 55% is not equitable, it is a payoff for the election.
If they can find a Judge with a backbone this deal will collapse like a house of turds in a rainstorm. The deals struck will not hold up if challenged legally, but Obama believes he can exempt this deal from the law through force of the Oval Office, it is the final act that proves his contempt for the America that was built on a foundation of laws and the belief that no one person is above them. Strange stance for a lawyer.
Rush gets into the details with an I told you so.
http://www.rushlimbaugh.com/home/daily/site_042809/content/01125108.guest.html
cconn: re Chrysler turning it around through bankruptcy protection and payng back every penny. Yes they did. All of which extended the over-production capacity of the auto industry. And here we are today.
By the same logic then, every big player facing existential (I love that word) problems should be bailed out. In essence, remove market failure as an option. What was the opportunity cost of the billions that the government used on Chrysler? Perhaps tens of thousands of jobs in other industries might have been created if taxes had been lower for example or the money had been poured into highways, in effect improving productivity?
Just saying.
I owned only one Chrysler product in my life - it wasn't very good quality, so I never went back. Mind you, that was thirty years ago, so there has been a lot of temptation, especially when there was a little bit of Daimler influence in their autos. I always resisted, although the lure of a Jeep Grand Cherokee was pretty powerful.
If the UAW is the new owner, I can see a much less stressful auto shopping experience for myself - Chrysler simply won't enter into the equation, no how, no way.
The part that disturbs me the most about all these bailouts is that some very big questions have not yet been asked.
1) At what point does the federal government itself go broke?
2) If the answer to 1) is never because the government can simply print more money, then the follow up question is: are we prepared to accept the possibility of 1980's style South American hyperinflation or 1920's style German hyperinflation?
3) If the answer to 2) is yes, then are we prepared to accept the possibility of the style of governments that followed those events?
It is rather disturbing that these answers have not yet been asked. It is as though the persons in charge want to forstall deflation at any cost without considering that past leaders chose to accept the punishing effects of debt deflation because they understood the even harsher effects of hyperinflation.
Hmmmm.
I wonder if I can go get a good deal on a new Toyota now that they are storing their vehicles too. Vehicles in general have been overpriced for too long in my opinion. Time to go wheel and deal.
Rick,
Vehicles are too expensive because of government interference. Between all the faux-green regulations and the safety features, that the governments can't even standardize the regulations across civilized nations means the cost of a car is X for the car PLUS Y for the government regulations, PLUS Z for the taxes. The latter are most likely 40% of the total.
Warwick,
So you're trying to say is I should ask my government for a 40% off discount at a retailer of my choice, after all I'm a paying customer and deserve a break if I'm *helping* the economy?
It's just like the gasoline tax, I think it's even higher than 40% tax that is part of the cost per litre. Originally, was supposed to be for improving infrastructure etc, but I wonder where that cash really goes.
So, Mr. Obama, the man who said outsourcing was an EVIL invention of the Bush Administration is trying to pawn off Chrysler on the Italians. As ruthless Axis powers go, why turn to the Italians after the Germans bailed? Does any of this make sense?
That's what I've said for years Rick, look at any farm and count the amount of 60's to early 80's trucks, there are lots, with only 2 or 3 being newer. We have been accepting the same price for our commodities for 20 plus years while the price of a loaded half ton went from 12,700 in 1986 to over 70,000 today, and these clowns cannot see why no trucks are being bought, are they that beeping stupid? We have reached the wall on a disposable asset like a vehicle, we could not pay 40,000,had to, cannot pay 60,000 and will not pay 80,000, and yet these union idiots say they need more, where is the highest taxed part of Canada, Oshawa. Go broke you theives, and start up again in the real world!
bartinksy,
Ya, I've noticed that too, that is a lot of farmers talking about the prices of their trucks.
I am not trying to offend any auto workers, but when you have a grade 6 education and you're making 70+ an hour making cars, when your similar worker over at honda and toyota might make half that, something is wrong.
Unions kill capatilism. How can you competively build and sell cars when you're paying a lot extra for the hired help.
If the Obama admin can appoint members of the board at Chrylser then it's doomed. The union will in effect be running the company. Suffice to say it is doomed to fail.
Watch for govt. agencies now to be the largest purchasers of Chrysler vehicles for their fleets. The govt. unions will force the buying of Chrysler products made by their union brethern.
Sort of like the Miller commies in Toronto buying subway cars from Bombardier, bidding process be damned.
"The union will in effect be running the company."
It'll be fun watching them try to be Karl Marx and Adam Smith at the same time.
Ah yes ... a Chrysler bankruptcy should really help sales according to this 2005 poll!
If the car buyer sentiment is still valid today as it was in 2005, Chrysler is probably in more trouble ... even without the great Obama's "help" ... if 74% of the buyers shun a manufacturer in bankruptcy.
http://www.foxnews.com/story/0,2933,179821,00.html
" ... Consumers Won't Buy Car From Bankrupt Co.
Tuesday, December 27, 2005
CHICAGO — Nearly three-quarters of Americans wouldn't buy a car from a bankrupt company, according to a recent survey.
In a nationwide survey by the Cincinnati-based research firm Directions Research Inc. published Friday, only 26 percent of respondents said they would purchase or lease a new car from a manufacturer that had declared bankruptcy. ..."
"I am not trying to offend any auto workers, but when you have a grade 6 education and you're making 70+ an hour making cars, when your similar worker over at honda and toyota might make half that, something is wrong"
They aren't making $70/hr, that's the cost of their labour to the company. Big difference.
(The cost of my labour to my company is somewhere near $115/hr.)
ulianov: "Harper is all for this deal."
It's seemed to me, in the WSJ article, that he was kinda holding his nose when he was making his statement.
http://tinyurl.com/cqatfb
But, no matter. I do, however, agree with you that no taxpayer money should be going to bailout any unions and the fidiots that run/support them.
Uli
Good observation. Just curious, in your opinion is this good or bad for Canada?
Look at the bright side UAW negotiating with UAW and pi##ing and moaning about the evil fat cat capitalist owners. Will they still pay bonuses? Buzz coming out of retirement to design the Homer? If union dues are non-taxable will the purchase of a car also qualify? Sorry, mind won't turn off.
Indiana regardless of the troll's take on the matter, what we have here is Canada paying money to the UAW and the US government to see that large factories do not leave the country.
I can't say the prospect fills me with joy. Still, shuttering ALL the auto-related manufacturing in Ontario doesn't fill me with joy either, so perhaps it is the lesser of two weevils, to corn a phrase.
Phantom:
So, do we protect the president of the UAW or is it OK to waterboard him?
Lesser of two weevils and all that.
Fair enough Phantom, BO's 101st day has been his best so far. We would have been having this conversation in a few months, and then years from now regardless. Although I share Warwick’s concern for the most part, this bankruptcy has been preordained by the One. It’s best to rip the band-aid off quickly, and the sooner the better.
Still, it will be interesting to see Uli's answer. It's quite entertaining seeing how creative lefties can be trying to escape checkmate.
Umm, Chrysler is not filing bankruptcy, its filing a Chapter 11 bankruptcy protection, which is a court monitored re-organization. The Canadian equivalent is a filing under the Company Creditor's Arrangement Act (not the BIA), which Chrysler is not doing. What creditors will receive will be part of the negotiation process. stock remains, pensions remain.
Brent
"I believe Chapter 11 is Bankruptcy protection and Chapter 7 is Bankruptcy."
Both are Bankruptcy.
Chapter 11 is reorganization. It goes fourth on the idea that some vestige of a profitable concern lies somewhere within the bloated bureaucracy. And will emerge when sufficient assets are sold, traded, bartered away, during proceedings.
Chapter 7 is liquidation. Game over, sell everything, settle as many debts as possible, walk away.
The original line in November was, that due to negative consumer sentiment, Chapter 11 would cause chapter 7 since without consumer confidence no one buys a car. It was the same reasoning for the original Chrysler loans a few decades ago. I guess we will put that theory to the test.
Warwick,
You are wrong. The first in line are the pension plans. These are the highest priority in a court of law in the US and Canada. The problem here is worse because the UAW in effect is also the highest priority lender to Chrysler. I've not seen a case in the US or Canada where a company in a contract with a union with a pension obligation to retirees has been allowed to void a pension plan. The last big case was actually in Canada with Stelco.