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Chrysler Bankruptcy: Political Payoff?

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According to reports, President Obama has forced Chrysler into the bankruptcy courts.

Obama claims he had no choice, that the lenders with a stake in Chrysler who refused to agree to the Administration's reorganization plan, which would have forced them to accept a two thirds write-down of the debt owed them by the company, forced the Administration's hand.  Among the holdouts were Oppenheimer Funds, Perella Weinberg Partners' Xerion Capital Fund, and Stairway Capital Management, although Perella Weinberg Partners, under what management termed “intense pressure from the White House," has agreed to accept the terms. The New York Times quotes Obama: “They were hoping that everybody else would make sacrifices, and they would have to make none,” Mr. Obama said of the creditors, among them several hedge funds and boutique investment funds. “I don’t stand with them.” The holdouts, however, countered with the very cogent argument that they are secured creditors, who, under US bankruptcy law, are entitled to being paid in full before unsecured creditors (in this case the UAW's Retirees Health Care Fund) are paid anything. They further argued that they were agreeable to taking a 60% writedown on the debt owed them for certain concessions, but that the Administration would not negotiate directly with them, preferring instead to deal only through J.P. Morgan Chase, which, as a recipient of TARP funds, is beholden to the White House, and therefore more pliable.

The bankruptcy plan proposed by the Administration will grant the UAW's Retiree Health Care Fund, the primary cause of most of Chrysler's financial woes, a 55% control of Chrysler, in exchange for the union's accepting company stock for 50% of what the automaker owes to the fund. For its part, the Administration agreed to lend the ailing manufacturer another $8 billion, above the $4 billion of taxpayer funds already provided it, and accept a role as a junior partner to the UAW, along with Italian automaker, Fiat, which will kick in its expertise in small car technology in exchange for a minority stake in Chrysler, reported to be 35%. Fiat is supportive of the bankruptcy plan because it will offer that company an opportunity to significantly prune its dealer network, which it sorely needs to do to remain viable itself.

The United Autoworkers, one of the nation's largest unions, has long been a major contributor to the Democratic Party and its candidates. It doesn't take a rocket scientist to see that the Administration's plan favors the UAW, which, ironically, is believed by many experts to be the principal reason for Chrysler's insolvency, thanks to the unbelievably generous concessions it has wrung from Chrysler management over the years.

According to The Wall Street Journal:

Fiat SpA Chief Executive Sergio Marchionne, seen as likely to take the helm of a restructured Chrysler, is counting on the bankruptcy process to move swiftly, allowing him to plunge into restructuring the troubled automaker. Over the next month, Mr. Marchionne will begin touring Chrysler plants and sifting through its other operations.

As majority shareholder, the UAW will have the largest block of voting shares in Chrysler, though only one seat on the manufacturer's board. It is difficult to believe that the union will play a silent role, either in the restructuring, or in the subsequent running of the company. Mr. Marchionne will undoubtedly be dogged at every step by union management, as they exercise the power over Chrysler and its management which has just been handed to them by the Obama administration in its eagerness to pay off a long-time, faithful political supporter.

One can only imagine what further concessions will be granted the UAW when Government Motors (GM) declares bankruptcy in the near future, as its Administration-puppet CEO has already predicted it will.

About Clavos

Raised in Mexico by American parents, Clavos is proudly bi-cultural, and considers both Spanish and English as his native languages. A lifelong boating enthusiast, Clavos lives aboard his ancient trawler, Second Act, in Coconut Grove, Florida and enjoys cruising the Bahamas and Florida Keys from that base. When not dealing with the never-ending maintenance issues inherent in ancient trawlers, Clavos sells yachts to finance his boat habit, but his real love (after boating, of course) is writing and editing; a craft he has practiced at Blogcritics since 2006.
  • http://blogcritics.org/writer/dan_miller Dan(Miller)

    The Supreme Court today issued an unsigned order lifting the stay on the sale of Chrysler.

    To obtain a delay, or stay, someone must show that at least four of the nine justices find that the issue raised is serious enough to warrant hearing a full appeal and that a majority of the court will conclude the lower court decision was wrong.

    “The applicants have not carried that burden,” the court said.

    Just goes to show that there ain’t no use trying to guess what the Supremes are up to until it actually happens.

    Dan(Miller)

  • Bobby

    Turns out the real reason was Ford is involved. Ford and Fiat are partners in the Ka/500 microcar, and Fiat wants it coming. Ford has been in bed with Obama since the election season. Ford profits off this Chrysler seizure since they are partners with Fiat on the 500 microcar.