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Kuros
Joined: 27 Apr 2004
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 Posted: Thu Apr 30, 2009 7:46 pm Post subject: Obama to hold Chrysler's Hand thru Bankruptcy |
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Surgical Bankruptcy set for Chrysler
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Mr. Obama announced a plan that would allow the United Automobile Workers, through their retirement plan, to take control of Chrysler, with Fiat and the United States as junior partners. The government would lend about $8 billion more to the company, on top of the $4 billion it had already provided.
Chrysler became the first major American automaker to seek bankruptcy protection since Studebaker did so in 1933. |
GM is next. Taxpayers are already out $15.4 billion on GM, with GM asking for another $11.6 billion. Now we're out $8 billion on Chrysler. |
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mises
Joined: 05 Nov 2007
Location: retired
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue May 05, 2009 5:32 am Post subject: |
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Chrysler bankruptcy has dealers on "razor's edge"
NEW YORK (Reuters) - Chrysler's car dealership network is on the verge of collapse, a U.S. bankruptcy court heard on Monday, as hundreds of dealerships have closed their doors this year and uncertainty about the company's future is driving consumers away.
"A lot of these guys right now are just trying to survive," James Arrigo, the co-chairman of Chrysler's National Dealer Counsel said of the company's dealers at a hearing on Monday in U.S. bankruptcy court in Manhattan.
Arrigo, who is one of the company's top-ten selling dealers, according to court papers, says that even he has seen a drop off of about 50 percent in car sales this year.
"People are walking in front of the door, saying 'I would be interested, but I have no idea if you're going to be here in two to three years," Arrigo told the packed Manhattan courtroom on Monday.
Almost 3,200 Chrysler dealerships around the country are on the edge of their seats watching the outcome of Chrysler's bankruptcy proceedings in Manhattan.
Chrysler filed for bankruptcy on Thursday, with a plan to sell its best assets to a new company managed by Italy's Fiat SPA and planning an emergence from court protection in as little as 30 days under the guidance of Obama administration officials.
Arrigo, who owns two Chrysler dealerships in Florida and said his dealership which used to average 450 cars a month sold just 130 cars in April -- its worst April since 1993.
"Our dealership costs $2 million to run, we've cut costs to $1.4 million, but with sales where they are we can't sustain the store at those numbers," he continued.
RAZOR'S EDGE
Dealers have seen not only a drop in sales, but also a drop in customer traffic over the last few months, Chrysler executive Peter Grady said in court on Monday.
"They've got some significant issues with capital and liquidity right now, many of them are on the razor's edge," Grady said, noting that Chrysler has shut down production and filed for bankruptcy protection just as the dealers are beginning their typically strongest summer selling season.
Grady said about 400 dealerships, that sell Jeep, Dodge or Chrysler cars, have closed or filed for bankruptcy since January, and the figures have "accelerated on a monthly basis." While the company used to see 15 or so dealerships close a month, it now sees about 35 to 40 shut their doors, Grady said.
"More than anything the consumers are very hesitant to do business with a manufacturer in bankruptcy," Grady said.
But business is also tougher for the dealers.
According to Arrigo, most dealers finance 100 percent of their wholesale purchases and use the profit from each sale to operate the dealership. About 70 percent of Chryslers' dealers' financing was provided by Chrysler Financial Corp until Chrysler Financial terminated its auto leasing programs in August 2008. Arrigo said in court documents that this change affected about 20 percent of his dealerships' sales. |
http://www.reuters.com/article/ousiv/idUSTRE5440Y620090505
In many medium sized and small cities the local collection of car dealerships form a double digit portion of all tax income. A large scale contraction in the number of dealerships (which is a certainty) will harm the ability of municipal governments to provide services. This will force them to reopen union contracts, leading to further wage deflation in the public sector. The public sector acts as an example of what a private sector median wage should look like, and declines in PS wages will drive down private sector wages. Deflation. |
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Ilsanman
Joined: 15 Aug 2003
Location: Bucheon, Korea
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| Posted: Tue May 05, 2009 6:34 am Post subject: |
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| You're already out 700 billion for banks and financial institutions. Why whine about 24? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue May 05, 2009 6:48 am Post subject: |
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| Ilsanman wrote: |
| You're already out 700 billion for banks and financial institutions. Why whine about 24? |
Well, because there is no money left. |
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Ilsanman
Joined: 15 Aug 2003
Location: Bucheon, Korea
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| Posted: Tue May 05, 2009 6:55 am Post subject: |
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It's like taking 20 big Mike Tyson uppercuts, smiling, then complaining about getting jabbed.
Priorities, people. Priorities. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue May 05, 2009 7:10 am Post subject: |
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Yes, you're right.
If one had to make a choice between bailing out failed financial firms and failed auto firms, the auto firms should prevail.
As Jim Puplava says, "it isn't a matter of spending everybody's future, it's a matter that the future has been spent."
From that perspective, the unavoidability of default, the auto bailouts are not really important. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Tue May 05, 2009 11:01 am Post subject: |
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| Ilsanman wrote: |
It's like taking 20 big Mike Tyson uppercuts, smiling, then complaining about getting jabbed.
Priorities, people. Priorities. |
What state/province are you from, out of curiosity? |
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Ilsanman
Joined: 15 Aug 2003
Location: Bucheon, Korea
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| Posted: Tue May 05, 2009 8:07 pm Post subject: |
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Saskatchewan.
| Kuros wrote: |
| Ilsanman wrote: |
It's like taking 20 big Mike Tyson uppercuts, smiling, then complaining about getting jabbed.
Priorities, people. Priorities. |
What state/province are you from, out of curiosity? |
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semi-fly
Joined: 07 Apr 2008
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| Posted: Wed May 06, 2009 7:56 am Post subject: |
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| Ilsanman wrote: |
It's like taking 20 big Mike Tyson uppercuts, smiling, then complaining about getting jabbed.
Priorities, people. Priorities. |
I think most of us would be too out of it to know whether we were hit 3 times let alone 20 times from a Mike Tyson in his prime.
As for the government holding Chrysler's hand throughout the procedure, sadly it's just something that has to be done. If one of the big three auto dealers fail it would mean hundreds of thousands if not a few million more unemployed wondering the dust bowl of the American southwest. Are we happy that they are doing this, heck no. Will "we" the general population of America benefit, probably not. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Wed May 06, 2009 3:10 pm Post subject: |
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| semi-fly wrote: |
| Ilsanman wrote: |
It's like taking 20 big Mike Tyson uppercuts, smiling, then complaining about getting jabbed.
Priorities, people. Priorities. |
I think most of us would be too out of it to know whether we were hit 3 times let alone 20 times from a Mike Tyson in his prime.
As for the government holding Chrysler's hand throughout the procedure, sadly it's just something that has to be done. If one of the big three auto dealers fail it would mean hundreds of thousands if not a few million more unemployed wondering the dust bowl of the American southwest. Are we happy that they are doing this, heck no. Will "we" the general population of America benefit, probably not. |
I strongly disagree.
If Chrysler were to go through bankruptcy without Obama lending it money, the company could use its DIP powers to restructure its union obligations with the UAW.
A chapter 11 bankruptcy means reorganization, not liquidation. And when you have organizations as large as any of the Big Three, there's always some profit-making branch that can be salvaged.
In 1980, the government under lame duck President Carter provided $1.5 billion ($3.7 billion in today's dollars) to Chrysler to avoid bankruptcy. But at the time private parties also had to make $400 million in their own concessions; indeed, Obama has chastised bondholders for not making more dramatic concessions this time around. And what did the UAW and other workers have to concede? The concessions were not onerous, as it limited the UAW to 3% yearly wage increases, eliminated their December 1980 bonus of one day�s pay, and eliminated over a week�s worth of paid personal days. They still got Christmas bonuses in 1981 and 1982!
But guess what? Chrysler still shed 62,000 jobs over the next three years, while still benefitting from those government loans at 1%. Chrysler hasn't recovered from that bail out, despite the myth of Lee Iacocca. I don't know the total number of jobs at Chrysler at the time, but the UAW made up most of the line workers, and there were only 109,000 workers at Chrysler before the bail out.
What we're seeing today is the government bail out the UAW. Could there be another reason, McArdle asks:
| Megan McArdle wrote: |
But let's go through a couple of the other stated rationales, to see why I find them so implausible:
1. Chrysler is a good company caught in a bad situation. Chrysler has been a bad headache for years. Daimler bought it for $36 billion in 1998, and actually paid $650 million to have Cerebrus take the company off their hands in 2007. Robert Bruner said in 2007 that
The alternative to a private-equity restructuring would be a government bailout. We as an investing public need to decide whether we want the public sector to step in to support these ailing manufacturers or would we rather have these turnarounds privatized." Chrysler's major problems were not born out of the financial crisis.
2. The hedge funds benefited from the government money, so they're getting more than they would have otherwise. As far as I know, Chrysler has burned basically all the cash they got from the government, which is why they're in bankruptcy. They haven't bought exciting new assets the secureds can liquidate; they've just produced more cars that can't be sold at a profit, put more wear and tear on machinery, etc. The deal they made with Fiat doesn't put any cash into the company. It's possible the government money somehow improved Chrysler's current financial hopes, but I don't see it.
3. The administration isn't kowtowing to the unions; it's trying to prevent massive job loss. Chrysler employs about 60,000 people. This is a rounding error in the number of jobs that have been lost since this recession began.
To put it another way, we could have taken the $8 billion or so we gave to Chrysler and given every one of the company's employees $133,000 to start their own War on Poverty, while still providing much of their pensions through the PBGC. Of cours, the new Chrysler is going to cut many of those jobs, so the cost of actual jobs saved will probably top $200K per. For as long as the company lasts. Which most analysts do not expect to be long, given that their super secret surprise scheme for turning everything around is to have Chrysler sell retooled Fiats to a country with one-seventh the population density and almost twice the birthrate of Italy.
4. They're bailing out Chrysler because the company is systemically important. Really? When Lehman failed, huge other portions of the financial system quite unexpectedly quit working. Yet when I look out on the streets, I see no noticeable dimunition of the number of cars there. When I turn the ignition key in my car, it still starts. |
The real reason is that the unions took a gamble on Obama in the primaries, putting him over the top, and Obama wants their support again in 2012. Bucheon Bum has hinted at this before. And yes, Ya-Ta, this is precisely the special interest stuff I am talking about.
But the worst part about all this is that while some UAW workers will keep their legacy pay, others will be let go (with generous severance agreements). Indeed, if the idea were keep more union jobs, that would be better served by a plan that would reward a reorganized Chrysler with loans from coming out of a bankruptcy with a certain number of jobs at a certain rate of pay and reduced benefits.
This is about the power of Ron Gettelfinger and the interests of the UAW, people. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Wed May 06, 2009 9:02 pm Post subject: |
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| Ilsanman wrote: |
Saskatchewan.
| Kuros wrote: |
| Ilsanman wrote: |
It's like taking 20 big Mike Tyson uppercuts, smiling, then complaining about getting jabbed.
Priorities, people. Priorities. |
What state/province are you from, out of curiosity? |
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I almost forgot. The reason I asked you this was I wanted to put the Chrysler $8 billion + GM $15.4 billion + proposed $11.6 billion into perspective. That's together $35 billion.
Saskatchawen has a few people less than Maine (where I used to live once), with $45 billion Canadian ($38.6 billion US) GDP. So $35 billion is almost the entire GDP of Saskatchawan (or Maine). |
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Robot_Teacher
Joined: 18 Feb 2009
Location: Robotting Around the World
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| Posted: Wed May 06, 2009 10:29 pm Post subject: |
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Is now the time to buy stock in GM and Chrysler?
It's too bad the US government doesn't invest the bailout monies into new infrastructure, new companies, and new everything for America. As the government kicks out bailout money, it temporarily pumps the stock price of these companies and banks, and the bailout money actually ends up in day trading investors pockets as capital gains. Also, it ends up in company executives pockets too instead of actually rebuilding the giant companies and banks as well as the country itself. I feel these monies are only helping to float a few boats, but not benefitting America whatsoever. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Sun May 10, 2009 10:45 am Post subject: |
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| Robot_Teacher wrote: |
It's too bad the US government doesn't invest the bailout monies into new infrastructure, new companies, and new everything for America. As the government kicks out bailout money, it temporarily pumps the stock price of these companies and banks, and the bailout money actually ends up in day trading investors pockets as capital gains. Also, it ends up in company executives pockets too instead of actually rebuilding the giant companies and banks as well as the country itself. I feel these monies are only helping to float a few boats, but not benefitting America whatsoever. |
You're not alone.
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Meanwhile, America simply isn't buying as many cars. Its the end of the car culture. |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Sun May 10, 2009 1:31 pm Post subject: |
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| Robot_Teacher wrote: |
Is now the time to buy stock in GM and Chrysler?
It's too bad the US government doesn't invest the bailout monies into new infrastructure, new companies, and new everything for America. As the government kicks out bailout money, it temporarily pumps the stock price of these companies and banks, and the bailout money actually ends up in day trading investors pockets as capital gains. Also, it ends up in company executives pockets too instead of actually rebuilding the giant companies and banks as well as the country itself. I feel these monies are only helping to float a few boats, but not benefitting America whatsoever. |
True, but at least those two companies didn't create the various incentives in the financial world that reward short-term gain at the expense of long-term prosperity. They weren't the ones that created this economic mess; they were simply mismanaged and finally are bearing the consequences for it.
Basically the bailouts are prolonging the pain. And even if there is an economic "recovery", a similar economic downturn will soon follow. We clearly need to make policy changes, but no politician has the political courage to do so- yet. |
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