Auto assembly lines can't make cars as quickly as the media manufactures the latest rumors.
Despite reports Chrysler LLC could file for bankruptcy as soon as next week, the U.S. Treasury Department continues to negotiate with the automaker’s creditors in hopes of averting Chapter 11.
“Bankruptcy remains the most likely outcome, but it’s not inevitable,” claims one observer.
The White House has now confirmed that Chrysler’s key creditors have offered to cut Chrysler’s debt to $3.75 billion from $6.9 billion in return for 40% equity in the re-organized company. The creditors also have dropped a request for $1 billion in preferred stock, as well as the request that Fiat put money into the deal, according to a person familiar with the matter. The bargaining goes on.
Officials from the United Auto Workers are refusing to comment publicly on reports that the union has reached a deal with the Obama administration that would clear the way for Chrysler to go through a “quick rinse” bankruptcy that would then lead to merger with Fiat.
“I’m not going to comment on these reports,” said a UAW spokesman.
Other senior UAW officials are saying “no final settlement is in place” yet; and bankruptcy experts are skeptical that the union can secure preferred treatment if the automaker does file for Chapter 11 protection.
Meanwhile, Chrysler officials said only that discussions are continuing, which they are.
“Chrysler has consistently said that its viability will be enhanced through an alliance with Fiat, as it represents a change in the company’s business model that expands its global competitiveness,” a Chrysler spokeswoman Shawn Morgan told TDB.com.
“As we move forward in this process, we believe it’s important to keep all options open. Chrysler will continue to work through the end of the month, based on the direction given by the Presidential Auto Task Force, to secure the support of the necessary stakeholders and reach a successful conclusion that the Administration and U.S. Treasury deems appropriate,” she said.
The UAW is willing to make concession, but there are limits, noted University of California Labor expert Harley Shaiken. It’s not clear how close Shaiken is to the actual process.
Moreover, in any bankruptcy the presiding judge could turn Chrysler’s pension assets over to the Federal Pension Benefit Guarantee Corporation, putting at risk what the union has sought to protect, Shaiken said.
President Obama’s Auto Task Force, however, also is hoping to use a provision in the stimulus package that pays laid off workers to cover the health-care benefits of Chrysler retirees, who could lose their benefits in a normal bankruptcy.
Chrysler also could wind up with money coming from Germany. If Chrysler does go bankrupt, Daimler AG will owe $1 billion to cover the post-retirement obligations of its former American partner, executives from the German automaker acknowledged at the company’s annual meeting in Berlin earlier this month.
The Auto Task Force is also continuing to try and reach a negotiated settlement with Chrysler’s creditors that could clear the way for a merger outside of bankruptcy between the ailing automaker and the century-old Italian carmaker Fiat, which despite its anemic financial health, has indicated that it is still interested in an “alliance” with the American company.
Brad Coulter, director of O’Keefe & Associates in Bloomfield Hills, Michigan, said the Treasury Department could raise some of the money needed to keep it afloat simply by forgiving a portion of Chrysler’s mounting debt to the U.S. Treasury. It has that power, he added. Any creditor can change the terms of a loan, he says.
“All the creditors really want is for the government to guarantee the rest of their loans to Chrysler,” adds another observer.
Critics say that amounts to a raid on the Treasury by the financial industry that has already reaped billions upon billions of undeserved money from taxpayers.
And so it goes. Stay tuned and fasten your safety belt as the May 1 deadline looms.