Today is the deadline. Chrysler’s stakeholders have to agree to a restructuring plan or a threatened Chapter 11 will occur. There appears to be a good chance that the name Chrysler and its brands will survive although under totally new ownership. The final hours, however, could hold surprises.
The unknowns are whether the hedge funds who hold about 30% of Chrysler’s debt will agree to a haircut. The large banks have already agreed to steep cuts in their loans and the same is expected of the Hedge Funds. If they do not then a Chapter 11 proceeding will take place and most likely, the hedge funds will be order to take less. The Chrysler “phoenix” will then rise again.
There are several troubling aspects of this deal.
First, the UAW, who shares in the responsibility for the Chrysler mess, will become the majority stock owner of Chrysler. While a certain amount of common stock was certainly due the union in return for healthcare and other concessions, a majority position makes you wonder why, and whether there will be room for an independent management team to run the company?
Second, Fiat is suppose to take a 30% share of the company, take the overall management lead, and in return infuse new models significantly boosting Chrysler’s position in fuel efficient automobiles. But Fiat? This is a company well known over the years for small, technically sound automobiles that do not sell all that well in a protected market like Italy. It was only a few years back that GM almost bought a near bankrupt Fiat. And yes, Fiat is said to be the new managing partner.
Third, the transition of Chrysler’s model line up from its present heavy, low gas milage, truck/SUV dominated one to a much more fuel efficient line up will require a lot of money. Where will it come from? I am pretty sure you will not find the Banks in a hurry and hedge funds will certainly take a lot of coaxing. I wonder whether Uncle Sam will be asked to throw more money into the pit?
For the Big Three team, however, there is a framework now upon which they could expect UAW and debt concessions. The UAW will ultimately need to offer the same deal to both Ford and GM, and it will be difficult for the debt holders to say no. Chrysler will soon have a new CEO and management team and their workers will have a chance to continue with less rich, but still very good jobs. The former Chrysler owners and senior management have taken one for the team.