Drive-Thru Bankruptcy Court Next Stop for Chrysler
Junior Ohio Senator Likens Plant Closings to Natural Disasters
May 1, 2009
COLUMBUS, OHIO: President Barack Obama, on his 101th day in office, announced that Chrysler, the third largest of Detroit's Big Three automakers, would pull into in the drive-thru lane of bankruptcy court where it could emerge in a few as two months with a new driver at the wheel, and new partners in the form of autoworkers and the federal government.
While the president painted a picture of time spent in bankruptcy court as one serious step along a path towards healing, he also scolded a small group of hedge fund debt holders for not compromising like everyone else had. Mr. Obama said he "stood with" United Auto Workers and their families and other debtors, and against those who held about 35 percent of Chrysler's approximately $6.9 billion in secured debt.
Speaking sternly to them in Washington surrounding by an entourage of supporters, Mr. Obama announcement means those who sought to exact a greater return on the trade out of debt for equity will now have to fight it out before a yet-to-be named bankruptcy judge, who may or may not look kindly on their stubbornness at a time when the fate of Chrysler hung in the balance.
Mr. Obama said it was unacceptable to let a small group of investors jeopardize the future of the company.
In Ohio, hard hit by auto industry job losses, the announcement was not openly welcomed by the Buckeye State's junior senator.
Sherrod Brown, a first-term senator from 2006 who spent years as a Congressman representing a northeast Ohio district where auto-related manufacturing was strong, said in a written statement that he was "disappointed that Chrysler bondholders were not willing to compromise and avoid bankruptcy."
The former Ohio Secretary of State whose state unemployment rate is 9.7, said he saw it as a "setback for auto workers, auto retirees, and auto parts suppliers" and said his "thoughts are with workers at the Jeep assembly facility in Toledo and all the other employees at suppliers and dealers elsewhere who may be affected."
Published reports say Chrysler spokesman Max Gates confirmed that all U.S. manufacturing facilities will stop production beginning Monday and be idle for 30 to 60 days or until Chapter 11 proceedings are worked out. Gates also said in the report that it is also possible that the downtime could vary from plant to plant, but that a shutdown schedule won't be known for awhile.
About 3,200 Toledo-area Chrysler workers will be idled - about 1,700 at Toledo Jeep Assembly, 1,300 at Toledo Machining in Perrysburg Township, and 190 at the Global Engine Manufacturing Alliance plant in Dundee, Mich, The (Toledo) Blade reported Friday. An estimated 3,000 other workers at area suppliers also are likely to be laid off.
"Auto communities need targeted and timely assistance from the federal government," Brown wrote, adding, "A major plant closing is an economic disaster and the federal government needs to treat it with the same level of response we give to natural disasters."
Brown's media release said more than 440,000 Ohio jobs directly or indirectly depend on the auto industry, and that auto suppliers directly account for nearly 100,000 Ohio jobs.
Covering the story for the Associated Press , Stephen Manning and Tom Krishner noted that Fiat, an Italian car maker who a few years back had a turnaround of its own under its own CEO, Sergio Marchionne, would claim about 20 percent of the company as a starting level, with greater ownership coming in future years, in exchange for bringing its fuel-efficient and lower-emission technology to the American marketplace.
Mixed into the announcement Thursday was the news that Chrysler CEO Robert Nardelli would depart after Chrysler's drive-thru bankruptcy was over. Unlike Rick Wagoner, long-time CEO of General Motors who became a casualty of that company's deal to accept money from Washington but who departed with more than $20 million retirement package, Nardelli won't be handed a so-called golden parachute, but will rejoin Cerebus, the private equity group that purchased Chrysler.
With Fiat now in the picture, the hope is Chrysler, which has had problems in the past and some say was too slow to adapt to the future, will reinvent itself by offering cars featuring the Italian automakers "cutting edge technology." Fiat has not faired well in America, but the small-car company now have a special chance to show Americans, who took to big cars, vans and SUVs because fuel was inexpensive, they can deliver trustworthy, fuel-efficient cars Americans want to buy.
Mr. Obama, who has been criticized mainly by Republicans for investing taxpayer dollars in a company they thought should go out of business, said Chrysler could not continue to limp along on an "endless supply of tax dollar." Thirty days after a plan for reorganization was submitted and turned down, Mr. Obama noted with pride that "seemingly insurmountable obstacles have been over come." When it's all over, Mr. Obama said he believes Chrysler will emerge stronger and more competitive.
Sen. Brown, while not elated with the news, said he will continue to work to reassure potential car buyers, and hopes Chrysler's new lease on life will "create new demand in the auto industry," a factor he deemed critical to "getting our auto industry back on track."
John Michael Spinelli is a Certified Economic Development Financing Professional, business and travel writer and former credentialed Ohio Statehouse political reporter. He is registered to lobby in Ohio and is the Director of Ohio Operations for Tubular Rail Inc. To send a tip or comment, email email@example.com