Also from Fiat’s official announcement today (via Financial Post)
The transaction will be implemented through an expedited sale of substantially all the assets of Chrysler to a NewCo pursuant to certain provisions of the US Bankruptcy Code. After intense consultations with the US Treasury and all the other constituencies, including, the government of Canada, the United Auto Workers (UAW) and the Canadian Auto Workers (CAW), Chrysler elected such route as the most effective to restructure its debt. As a consequence, today Chrysler will request the bankruptcy court in New York to approve the sale of Chrysler’s business to a NewCo. Subject to the approval of the regulatory authorities, if the Court will approve the Transaction it will require the parties to complete the transaction as soon as possible.
“This transaction represents a constructive and important solution to the problems that have plagued not just Chrysler in recent years, but the global automotive industry as a whole. Bringing together Fiat’s world-class technology, platforms and power-trains for small and medium sized cars, and its extensive distribution network in Latin America and Europe with Chrysler’s rich heritage, strong North American presence and talented and dedicated workforce will create a powerful new automotive company, while helping preserve jobs and a manufacturing industry that is critically important to the U.S. and Canadian economies.”
“Chrysler’s bankruptcy,” according to President Obama’s statement today, “is not a sign of weakness.” The goal is not to radically restructure the business of a firm that has been failing for decades and currently makes some of the least desirable vehicles on the market. No, for Obama and his task force, this is about going after evil speculators. After lauding the noble sacrifices of the UAW (which will own 55 percent of New New Chrysler), JP Morgan (recipient of $25 billion in TARP funds) and Daimler (who raped Chrysler in the first place), Obama glowers at the mean, nasty speculators who are “forcing” Chrysler into bankruptcy. “In particular,” explains Obama, “a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices and they would have to make none. Some demanded twice the return that other lenders were getting. I don’t stand with them.” So who are these shadowy money men who just won’t let Chrysler run free of their oppressive debts?
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.
Or, as President Obama puts it, “a new lease on life.” Chrysler (“a company with a particular claim on our American identity”) will file for Chapter 11 bankruptcy in Manhattan court today, as Obama has promised $3.5 billion in federal aid over the next 30 days in hopes of hitching the troubled automaker to Fiat. The case will be handled by judge Arthur Gonzalez, a veteran of the Enron and WorldCom bankruptcies. When the deal is concluded and Chrysler emerges from bankruptcy, the federal government will inject another $4.7 billion. That more than doubles the current taxpayer investment in Chrysler, which had reached $4 billion (not counting ChryFi). See President Obama’s full statement at C-SPAN.
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?
GM’s major bondholders are asking for a 58 percent stake in a reconstituted General Motors, but there are a number of challenges facing any debt-swap to relieve GM’s crushing $28b debt load. First of all, the Freep reports that some $2.7 billion worth of GM debt is covered by credit-default swaps. Since this means that ten percent of GM’s bondholders stand to receive face value for their bonds, the odds that 90 percent of GM’s creditors will take up any haircut offer seem slim. Add a bunch of angry, populist small bondholders to the equation, and you have yet another obstacle to the restructuring goal.
TTAC commentator and contributor David Holzman writes:
Like just about everyone else whose car is at least four years old, my windshield (1999 Honda Accord) is pitted enough to make driving into the sun a real chore. What can I do about it, if anything?
I tried some glass polish from one of the big mail order car stuff places, in Wash. State I think. (I’m blanking on the name, but I used to get their catalog). Cost about $20, didn’t do squat.
BTW, Car Talk got this question in the last two years, said there wasn’t anything you could do. That’s hard for me to believe.
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.
For the past 60 years or so, Fiat has had what amounted to a compulsive gambler’s business model: invest tons in one single car, cross fingers that it sells like hotcakes, and run the rest of the company with disinterest. This one-pony strategy has often delivered what, in the end, were the most desirable small cars of each decade. How else to describe the 1950’s 1100, the 1960’s 124, the 128 from the 70s or the Uno from the 80s? All, as well as the Punto from the 1990s and the Panda from the present decade, adhered to a simple but elusive formula: cheap to buy, brilliantly packaged, surprisingly robust, and a hoot to drive. (Most other Fiats, let’s not fail to mention, have been crap).
Recent Comments