President Barack Obama announced Thursday that Chrysler would head into bankruptcy with the aid of up to another $8 billion in taxpayer money, a last-resort attempt to quickly restructure the struggling giant. He blasted hedge-fund creditors whom he said held out for a richer deal.
Chrysler will file for bankruptcy, rather than bureaucracy, after negotiations for a taxpayer-financed bailout broke down. This means the flailing U.S. automaker will get to restructure and perhaps come back under competent management. The Washington Post has more:
Under the administration's detailed plan for a "surgical bankruptcy," ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding.
Company and government officials had feared that a bankruptcy would stain the brand, shake customer confidence and erode sales, but the administration said it would seek to use the process to create a new Chrysler company. Its ownership would be divided, with the company's union retiree health fund receiving a 55 percent stake, Fiat would claim as much as a 35 percent share and the United States would take 8 percent. The Canadian government would receive two percent.
Years of building cars that were too expensive and not reliable enough stained the brand. Bankruptcy merely acknowledges reality. This gives Chrysler a chance to make up for decades of bad decisions and come back to compete in the highly competitive automotice marketplace.Of course, what's best overall isn't best for everyone involved. Employees will be probably be better off working for a car company with competitive wages than not working for a defunct car company with higher wages. Retired workers will get hit. There is no way that Crysler could ever have afforded the pension promises it's made over the years, and bankruptcy opens the door to renegotiating those commitments.
A polically-mediated bankruptcy, with politicians picking how and when the company restructures, isn't optimal. But it's probably going to lead to a more competitive company than the disasterous GM bailouts.