Chrysler Debt Negotiations Come To A Head
While most people focus on GM, the potential bankruptcy of Chrysler is even more interesting as its debt negotiations come to a head before the April 30th deadline imposed by President Obama.
GM is an utter disaster, but so is Chrysler. The company has been maintaining a lower profile while dealing with its situation, but the end is near. The company has an April 30th deadline to restructure most of its debt and find a partner or the government is going to let it fall into bankruptcy.
Chrysler has found a partner in Italian car giant Fiat. The problem is Fiat has taken the time to look at the full picture at Chrysler before committing to the deal. After doing so, Fiat has pulled back and demanded concessions from the unions and bondholders just as is occurring in the GM negotiations. Just as with GM, the bondholders and unions are balking at restructuring.
The concessions Fiat is demanding from the unions are significant. The company effectively wants union workers to take a salary cut to $19 an hour. This is a huge cut for most autoworkers. All indications are the unions will refuse. If they do, the company will go into bankruptcy and rates could be imposed on the union whether it likes them or not.
Fiat has taken aim at the bondholders as well. Chase and J.P. Morgan own roughly 7 billion dollars in bonds. Fiat wants them to forgo the bonds and also give Chrysler a $1 billion dollar loan. Might as well swing for the fences! As you can imagine, the bond holders are not keen on this idea.
So, where is all this headed? It depends on how much Fiat wants to be part of the U.S. market. In this economy, I doubt that there is much of an urge unless it is a really good deal. Only a madman would describe owning part of Chrysler as a good deal! As a result, expect to see Chrysler fall into bankruptcy and divided into smaller brands.