Chrysler has been battered in the last two days of congressional hearings. If there’s one thing that everyone in congress seems to agree on, it’s that Chrysler isn’t worth the hassle. Not only is it the smallest of the three automakers, but the Cerberus issue has loomed large as well. Today alone Nardelli told representatives at least twice that as far as he was aware, Cerberus didn’t have the funds to revitalize Chrysler. Needless to say this didn’t go over particularly well (private equity is deliciously easy to demonize), and Nardelli was looking increasingly stressed as the hearings dragged on. Probably aware that it’s about to become a sacrificial lamb (or, in a last-ditch sympathy ploy), Chrysler has reportedly hired law firm Jones Day as bankruptcy counsel, according to the Wall Street Journal. Neither side has confirmed or denied the move, but since the WSJ is quoting “people familiar with the matter” it must be true. Corinne Ball, who previously worked on the Dana Corp reorganization, GM’s Daewoo acquisition and “many cases involving the United Auto Workers union,” is said to be handling the case.
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“Jones Day” is the firm.
Does this mean C11 is a good bet? If so, that means Ford n GM go C11 too? Should I sell my Ford stock? :/
Brain fart amended. Thanks!
A sliver of me feels for Nardelli – he’s trying to make something out of scraps. Being the glutton for punishment he is, he sticks it out instead of saying “eff it – I’m outta here.” Cerebus put him out there as sacrificial lamb. If his head rolls by the decision of the free market, their hand should come with it.
The government might use the $7B that Chrysler’s after as a backstop to pad the suppliers and dealer communities when they go C11-cum-C7, to give GM a fighting – yet slim – chance at surviving.
@romanjetfighter: I think the insinuation is that C11 for Chrysler is the lesser of 3 evils, and Congress is hinting at that.
The report I read indicated that they had been hired a few weeks ago. It doesn’t change the severity of the situation, but I don’t think it was in response to the ass-kicking Chrysler has taken in the past 48 hours. The only hiccups Chrysler going down will cause is in the suppliers that are overly dependent on them and the communities with plants. (Toledo is screwed.) With a 10% market share, those ripples won’t be that great in the big picture assuming Ford and GM are bailed out and become viable.
Ford stock is as high risk as they come. It isn’t investing anymore- it’s gambling. (or speculating, as the polite term would be).
It’s no coincidence that this story was leaked today.
It’s also no coincidence that the automakers wanted to have hearings today, when the jobs numbers were released. That employment report ensures that the 2.8 will be getting some cash.
How does this impact the international mouse fur trade and plastic milk jug recycling industries?
I think we’re reaching a point in this saga where too many people are lending far too much significance to every little drib and drab of information that comes down the line. The fact that Sen. Shelby is being quoted ad nauseum attests to our insatiable appetite for bailout junk food.
What say we B&B scrape a few hundred bucks together each and buy up “American Motors Corporation” out of the ashes, snag the Toluca, Mexico car and engine plants, as well as rights to as many 5-star dealers as we can sign on? Maybe snag the tools & dies, rights to the Journey, as well. (Hey, Mexico is part of “North America” after all – so it kind of still fits the name).
Then offer the AMC PTCruiser, AMC Journey, and contract for production of other cars on two year contracts.
How about a version of the Montgomery, Alabama built Hyundai Sonata, sold as the AMC Ambassador? (Also buying Mongtomery built drivetrains for use in the Journey, too – no real work to slip the 4 cylinder in – it’s essentially the same one Chrysler builds now.)
Maybe talk the Toyota/Peugeot/Citroen collaborative factory into selling some Aygo/107/C1 based cars, which would be marketed as the AMC Gremlin (natch!)
Isn’t this what Cerberus would have done, anyhow? Something along these lines?
Demand for recycled milk jugs will go down now that they are not being made into Chrysler Interiors.
Demand for recycled milk jugs will go down now that they are not being made into Chrysler Interiors.
Having rented a Dodge Caliber recently I can agree with that!
John
I think we’re reaching a point in this saga where too many people are lending far too much significance to every little drib and drab of information that comes down the line.
Not at all. Leaking this story is a veiled threat for what will happen if Chrysler doesn’t have its demands met. Since Nardelli can’t flaunt this in front of the committee without looking like an opportunist, the next best thing is to leak it to the media, without an attributable source. If it’s in the WSJ, you can bet that everyone is going to see it, which makes it a great place to spread the message.
Re: “private equity is deliciously easy to demonize”, don’t forget that 20% of any bailout of Chrysler will still be benefiting the foreigners that ruined them. Also, ownership doesn’t really need to be a factor, they are the smallest and have no future products – that makes it relatively straightforward to let them be the “Lehman” of the group.
Pch101:
It’s a pretty damn risky strategy, I can see (and definitely hope to see) Senator Corker say, “[h]ey, they’ve already got bankruptcy counsel; now we don’t have to waste our time merging them into GM just to have GM shut them down.”
Personally, I’m delighted to hear Chrysler might be going CH11. If they do, I think they could come out far better off than GM or Ford… WITHOUT any guv’mnt money.
Chapt. 11, yeah right. Chrysler would be going straight past 11 down to chapter 7. I can’t think of any sane investor that would put money towards a Chrysler reorganization. At least towards an independant Chrysler.
@jgh:
Nardelli knew what he was getting into when he signed on with Chrysler. He’s undoubtedly being paid handsomely for his time.
I think the word ‘temerity’ is more appropriate.
It’s a pretty damn risky strategy
I don’t see this as being risky, and it strengthens their hand by raising the threat of pulling out the big gun. If I was them, I would do the same.
Rix-I think I would rate GM stockas far riskier.
Ford has cash to run for a while, if congress is unimpressed GM stock will go zero fast. May be no opportunity to get out at all.
Ford, you may lose-but there will be something left.
My thoughts.
Bunter
If Chrysler went to Chapter 11 or even 7, I think what would emerge would be Jeep, and that’s about it.
Jeep is a niche brand with an enviable product in the Wrangler. Jeep Wrangler if you trace the whole thing back to the WWII original, is in a very select group of vehicles that are timeless in their appeal and demand. Others in this group include the VW Beetle, Porsche 911, and the whole brand that is Harley-Davidson. Not many other members in that club.
Jeep by itself and run well could be something Warren Buffet might want to buy. It would be a company that doesn’t have spectacular growth prospects, but its primary product and image puts it in a “competitive castle” surrounded by a moat from competitors, and generates steady cash-flow year after year after year. I hope the Chinese don’t buy it, talk about an ironic sign of the times if they do.
Pch101:
Chrysler’s “big gun” is pretty small, they have about 56,000 US employees. Circuit City had about 45,000 employees at the time of bankruptcy.
For flakes like Dodd or Pelosi this trick might work, but for the fiscal conservative Republicans Chrysler having already retained bankruptcy counsel just makes that option look more viable. Corker has already pointed out that Chrysler is just riding GM’s coattails, and would not justify bailout talks on its own.
GM is playing the best strategy in regard to begging for money: “We will not last past the year, but we haven’t even thought of bankruptcy because it is so scary. There is no Plan B.”
This news regarding Chrysler just shows that they have a Plan B already in the works.
200k-min: For Chrysler I have no problem with Chapter 7. I hope foreigners get Jeep, it is a cursed brand that has killed every company that has owned it (ok, well, except Daimler).
Chrysler’s “big gun” is pretty small, they have about 56,000 US employees.
Yes, but the tide favors the bailout happening, so they may as well do it, anyway.
Chrysler’s main risk is that the other two get bailed out, but that they get left behind. They have nothing to lose by leaking it, and something to gain.
The CEO of Chrysler on TV this morning looked like “death” warmed over, so sad for him eh?
In deed he is more or less a scrap goat for Cerberus.
Nardelli wasn’t too happy with the direction everything was going. You could see it in his eyes that he was hoping someone would ask about about bankruptcy. When they did, he put the bankruptcy grenade’s pin in his teeth and is still waiting to see who flinches first.
Smart money is that congress will. They will forget that these companies are where they are at due to their own corporate toxic culture, how badly they let the dealership treat their customers, and let’s not forget the shittymobiles all three of them put out for decades. No, a threat that someone will go under is always a viable solution when dealing with the government with your hand out. The other two are riding Chrysler’s coattails.
The only real question is who will buy Jeep this time?
In the event that it looks like the loan/bailout/whatever falls through or won’t be enough, Nardelli should get back to Auburn Hills as fast as he can (he can take the private jet, I don’t care) and Chrysler should file for chapter 11 as soon as possible.
Why? If Chrysler can get in and declare bankruptcy before GM, they have a much better chance of getting C11 and not being told to go straight to C7.
After GM? “They” might say we already saved GM and tell Chrysler to go shove it.
I think Chrysler has the best chance of actually making it out of C11 and becoming successful, but that’s only IF Cerberus gives it the cash infusions necessary to make it through restructuring.
Would Cerberus be willing to do that? Well………..
If you they wipe the slate clean with a UAW cram down and cull the dealer herd they may be able to make a go of it with fresh owners.
Could Cerberus “self deal” having a different head of the dog (Limited Partnership) buy a bunch of the debt or provide the DIP financing.
The other option is that Renault/Nissan or another buyer cherry picks the better parts in Ch7.
Nissan already has shared rights to the Ram pickup and VW to the Minivan.
The big question is who gets Jeep? I hope whoever ends up with it gives the USDM Wrangler a good diesel.
Here is a moist towelette. Approved
Crapsler will not be missed.
RedStapler,
Jeep already has good diesels, they export them out of the port in Baltimore. You just can’t buy them here. Something about our laws won’t let them be sold here. They “pollute” too much. But Europeans don’t think so. They get 30 something miles to the gallon in them. Maybe Americans are stupid.
Ryan, We are relieved that you won’t be put out by Chrysler’s demise. I can sleep better at night.
windswords,
Glad I could help ease your mind. Don’t worry too much, we will bail out Crapsler AGAIN.
I can see Chrysler going by the wayside as the US Govt uses many GM vehicles. whereas it appears State and Local Govt, and many heavy duty fleets use Ford.
Rarely do you see Chrysler being utilized.