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Tuesday, June 09, 2009

The Chrysler Bailout: Who Wins with Failure?

David Zaring offers up his as-always savvy analysis on the Supreme Court's grant of a stay in the Chrysler bailout.  Here are some quick thoughts:

  • Fiat can pull out if the deal is not wrapped up by June 15.  Would Fiat pull out?  It's unclear what has changed.  Perhaps the continuing toll of bankruptcy uncertainty would weaken Chrysler too much.  Or perhaps Fiat's having buyer's remorse.
  • It is assumed that the failure of this deal would be a blow to the Obama Administration.  But who wins and who loses, at this point, if the deal blows up now?  Ford and GM are better off without Chrysler around.  The Chrysler creditors would lose their deal and fall back into the morass of a liquidation.  This might chasten the GM creditors.  Moreover, the Obama administration would be able to say it had tried its hardest to save Chrysler without incurring the expense and risk of actually bailing out the company.  So perhaps the best thing for the administration would be a stay that gives Fiat an out.  Fiat walks away, the deal blows up, and the Supreme Court then dismisses the case as moot, at least until the GM bankrupcty is resolved.  And maybe those creditors get a bit more of a buyout -- just enough to persuade them not to appeal. This theory was influenced by Mickey Kaus, who wrote on Saturday: "You have to wonder if the Obama team knows the FIAT deal it promoted won't work, and arranged it simply as a way to delay the inevitable--while it actively avoided a merger that would foist Chrysler on GM, because GM does have at least a chance to survive after bankruptcy and doesn't need Chrysler's baggage. (Why make Chevy responsible for the Sebring?)" 
  • The big losers if the deal blows up would be Chrysler workers and management.  The shutdown of the Studebaker factory is widely regarded as a catalyst for the creation of ERISA.  Might the collapse of Chrysler, and its devastating impact on its employee and retiree health care coverage, serve as a catalyst for national health care reform?

Posted by Matt Bodie on June 9, 2009 at 04:06 AM in Corporate | Permalink

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