Well, the fat lady done sung. Only it was a thin president who ended TTAC’s Chrysler Suicide Watch. Lucky for us (if no one else), the Prez also promised to keep the dead automaker alive, through a fresh injection of federal funds. Obama didn’t specify the price tag for this zombification, but the bidding starts with the familiar “b” word, and octo-mom would recognize the number. As you know, Obama justified his ongoing intervention in Chrysler’s journey to liquidation by pimping the un-dead (now dead) American automaker to Italy’s own automotive English patient. So it’s time to get on with the business of tearing the Fiat “merger” idea to shreds. In this unenviable (but gainful) task, I’m aided by Jennifer Clark of the Dow Jones News Service. Jenny’s Chrysler-on-the-block piece arrives under the odd title “Chrysler Chapter 11 Filing May Aid Fiat Turnaround.” Go figure.
Posts By: Robert Farago
In his cut-and-paste letter to ex-Chrysler-as-we-knew-it employees, ex-Chrysler CEO Bob Nardelli refers his ex-troops to a website set-up to explain just how bad their post C11 situation isn’t. The electronic hand-holding portal—www.chryslerrestructuring.com—offers nothing more than the press release and the letter (which refers to the site that refers to the letter). Slightly more reassurance is available at www.scoopchrysler.com. (I’ll refrain from making any canine scatology comments.) The second site provides workers with a simple C11 Q&A. Those looking for a little truth and reconciliation action are bound to be disappointed, as this answer to “why?” shows: “Companies file for Chapter 11 for a number of reasons, but generally they are seeking to protect their assets while trying to address financial problems – such as excessive debt, insufficient liquidity, unreasonable contractual obligations, and/or unmanageable liabilities. The process also is sometimes used by companies to sell assets free and clear of any obligations.” “Unreasonable contractual obligations.” How . . . reassuring.
The Presidential Task Force on Automobiles (PTFOA) has claimed its second Motown CEO scalp. Chrysler CEO Bob Nardelli announced his departure in paragraph eight of Chrysler’s official statement on the automaker’s Chapter 11 bankruptcy filing. “Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat,” said Nardelli. “I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance.” (Star Wars fans need apply.) Our sources tell us what common sense suggests: PTFOA head Steve Rattner read Nardelli the riot act. Nardelli joins former GM CEO Rick Wagoner in that special place where pensions are bankruptcy-proof (insured by the company), and mythical share option fortunes are bemoaned from a place of complete financial security. While Wagoner was immediately replaced by his clone, former CFO Fritz Henderson, the PTFOA has not named Nardelli’s successor. The lack of speculation speaks volumes.
Auburn Hills, Mich., Apr 30, 2009 – Chrysler LLC today announced that, as a result of the comprehensive restructuring plan agreed to by many of its stakeholders, it has reached an agreement in principle to establish a global strategic alliance with Fiat SpA to form a vibrant new company. It will allow Chrysler and Fiat to fully optimize their respective manufacturing footprints and the global supplier base, while providing each with access to additional markets. Fiat powertrains and components will also be produced at Chrysler manufacturing sites.
In a surprise, almost off-hand announcement, President Obama told the nation that GMAC will finance Chrysler wholesale (dealer) and retail (customer) sales, as the ailing automaker enters Chapter 11. Obama promised “fresh financing” for GMAC to do the deal. Not Chrysler Finance. The remark adds substance to rumors that the Presidential Task Force on Automobiles (PTFOA) will arrange a shotgun wedding between Chrysler Financial and GMAC, despite objections from the FDIC and the Fed. For some reason, Obama forgot to mention either the merger or the amount of Uncle Sam’s contribution to GMAC that will be needed to back up the PTFOA’s decision not to throw Chrysler into liquidation. Yet. Meanwhile, Obama reiterated his promise to stand behind ChryCo customers with a federal warranty program, details of which are still notable by their absence.
A member of our Best and Brightest found this 107-mile Pontiac G8 for $26,664. I called and verified the vehicle and price, although these things should always be verified in person. Has anyone else seen low price G8s? And how low will they go?
Bloomberg reports that GM bondholders have made a counter-offer to the feds’ debt-for-equity swap proposal. Two days ago, The Presidential Task Force on Automobiles (PTFOA) offered the bondholders a 10 percent piece of a newly reconstituted “good” GM in exchange for $27 billion of paper. The bondholders reckon that should be . . . wait for it . . . 58 percent. To avoid C11, GM must convert 90 percent of its debt into equity. So, forget it. “Old” GM’s toast.
And that’s why we’ll give Chrysler and Fiat 30 days to overcome these hurdles and reach a final agreement—and we will provide Chrysler with adequate capital to continue operating during that time. If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6 billion to help their plan succeed. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollars to keep Chrysler in business.
Those damn hedge funds and their secured debt! Despite enormous pressure from the US Treasury, “holdout creditors” rejected the federal government’s offer to increase the cash part of a proposed debt-for-equity swap to $2.25 billion (up from $2 billion). A high noon Wednesday deadline came—and went. Hey! What happened to Chrysler’s “owners” Cerberus? Anyway, according to Automotive News [AN, sub], the feds—under Presidential Task Force on Automobiles leader Steve “Chooch” Rattner—are stepping-up their campaign to blame the recalcitrant bondholders for ruining their non-C11 plans to recreate the ailing American automaker as a Fed-Fiat-UAW partnership. “While the Administration was willing to give the holdouts a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success,” an “official” told AN. “Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward.”
TTAC Commentator 70 Chevelle SS454 raises some good points about rumors (perpetually perpetuated here) that the feds’ plan to combine Chrysler and GM into “American Leyland.” The clever member of our B&B wrote his analysis in response to John Horner’s comment, which addressed the UAW’s role should they parlay their (allegedly) forthcoming shares in Chrysler and GM into shares in the combination of the two.
100% mergers of competing companies are happening all the time, so I don’t think one entity having major ownership stakes in two competitors is going to run afoul of whatever is left of anti-trust enforcement.
70 Chevelle SS454‘s reply
No. That’s not how DOJ/FTC review of mergers goes. They look to see whether the resulting company would have power over price, or market power. There’s actually a formula that’s used to combine market shares and calculate the resulting company’s market power, called the Herfindahl-Hirschman Index (HHI). Anything with an HHI score above 1800 is considered “highly concentrated,” and is rarely approved.
Barack Obama is set to addresses the nation tomorrow, announcing Chrysler’s death and rebirth. The president will frame the government’s intervention in familiar terms: hope and change. Only in the reverse order: change and hope. Obama will say that the federal government is helping Chrysler transform into a viable American automaker. This we (yes we) are doing because President Obama has hope for the future of the American automaker and, not-so-incidentally, American automaking. Chrysler, the United Auto Workers (UAW) and Fiat will now build the kind of economical, environmentally friendly vehicles America needs. Unfortunately, Obama’s “plan” is the exact opposite of what it pretends to be.
Bloomberg reports that not-entirely-unexpected news that President Obama will announce Chrysler’s bankruptcy tomorrow. The president will outline the automaker’s restructuring, along not-entirely-unexpected lines (known in these parts as “good” Chrysler / “bad” Chrysler). In other words, Uncle Sam is reconstituting ChryCo as a partnership between the United Auto Workers (55 percent), Fiat (20 percent) and you, the people (25 percent). And guess who gets to put in the $6b plus to make this happen? That’s right: you! But then you’ve already put in over $4b, so what the heck. Anyway, Chrysler buyers (both of them) shouldn’t worry that C11 will stop Auburn Hills in its tracks; you’re very generous. Automotive News [sub] reports that Chrysler will extend current consumer incentives (a.k.a. employee pricing plus) until Monday. Meanwhile, The Wall Street Journal reports that President Obama is laying the blame for Chrysler’s collapse right where it doesn’t belong: Chrysler bondholders. (Read More…)
Yesterday, TTAC reported that GM wasn’t waiting for bankruptcy to launch a dealership jihad: a 42 percent cull designed to placate The Presidential Task Force on Automobiles and, let’s face it, common sense. After that report, one of our GM moles gave us a heads-up that GM Marketing Maven Mark LaNeve was addressing the dealers live via satellite on some super-secret mission. Turns out it wasn’t LaNeve’s four missing “weekly updates” on GM’s reinvention. Automotive News [AN, sub] reports that Mark was using GM’s bird to flip the bird at GM dealers. In fact, the sales chief has declared war on his “underperforming” stores, vowing (by omission) not to pay the terminated dealers a penny in compensation. “There was no money for anything other than what the franchise agreement calls for,” a dealer informed. “Meaning we can send back new cars, parts, special tools and some signage.” And once again, AN has withheld critical information. In this case, it’s a two-day delay on LaNeve’s characterization of the dealers caught in the cross-hairs.
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