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Will Obama's Bankruptcy Plan Doom Chrysler?

Barack Obama's bankruptcy plan will doom Chrysler and I explain why in my premier column at American Issues Project. Here's a portion:

On April 30th in an unprecedented move, President Barack Obama stood before the nation and declared that Chrysler filed for Chapter 11 bankruptcy. That it was the president of the United States and not Chrysler's CEO Bob Nardelli making this announcement was extraordinary. The president proclaimed that bankruptcy would allow Chrysler to come out "stronger, and more competitive," with a "new lease on life." That is doubtful at best.

Chrysler was doomed to failure long before its bankruptcy, and if the president gets the bankruptcy he wants, the company will be doomed to fail after it emerges. The new entity that will take its place will be owned and operated by people who don't understand how to run a business, much less make a profit.

President Obama does not and cannot acknowledge that Chrysler's union-dominated business model has been slowly suffocating it for many years. When Daimler-Benz purchased Chrysler in 1998, it paid $36 billion dollars based upon the belief that it was a merger of equals. Almost immediately after the consummation of the deal, however, it became evident to Daimler that the merger was in reality an acquisition.

After nine years of clashing cultures and business models, it became clear to Daimler that Chrysler was a drain on its resources. Daimler recognized something that the administration and the UAW will not admit: Chrysler's union-dominated business model is not sustainable. Because of union member and retiree health care costs, Daimler would have experienced losses that could have reached as high as $18 billion annually, making it an anchor Daimler was all too happy to cut loose. In fact, Daimler wanted out of the deal so badly that it paid Cerberus Capital Management $650 million to take Chrysler off its hands.

What makes the Chrysler bankruptcy so important is that if Obama is successful forcing his will on the bankruptcy court, he will do the same with GM putting the American people are at risk of subsidizing two auto companies. When you're finished reading the column, feel free to leave a comment.


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Comments (20)

Good article Kim, and sadly... (Below threshold)
P. Bunyan:

Good article Kim, and sadly probably a good prediction.

"Add to this the president's flawed argument that Chrysler can be saved by making small, fuel-efficient cars when the reality is the consumer actually prefers larger vehicles to Fiat's micro cars."

Very likely Obama's management plans for Chrysler (and GM) are banking on the fact that the Obama's policies are going to drive fuel prices well past $5, $6, maybe $9, or $10 per gallon fairly soon and then consumers will esentially have no choice but to buy little weiner cars.

Even so it won't save Chrysler or GM in the long run. There are too many companies that can already make those little cars cheaper and with higher qualilty and much greater reliability than a union product is capable of having.

Of course Obama & the Dem Congress will probably then impose oppressive tarrifs on the consumers who want to buy the better cars so they'll be forced to by the inferior product unless they can afford all the extra taxes.

What this administration ca... (Below threshold)
Mycroft:

What this administration can't seem to get thru their stupid heads is that there are people that NEED the larger cars.

Little weiner cars are no good at hauling around the power wheelchair (paid for by tax dollars) used by my mother in law. A minivan is good for that, and does not leave the electronics, battery or other parts of that wheelchair exposed to the weather like a little weiner car carrier would.

As for me, I like to go scuba diving, but to get there, I have to haul my gear including tanks and other gear. My buddy and I usually car pool, so that is at least 4 tanks along the back of my van (or his).

Or when I help with the scout troop I am a part of. How many boys and gear can you get in a weiner mobile?

We used to have a second car that *WAS* a weiner mobile. And the crappy construction of it caused me to get rid of it early in it's life cycle, at high expense. ($5K for a replacement engine, when the first one blew at 50K miles).

Today? Well one of our minivans is in the shop getting a major repair. It's a 1994 vehicle, and I want to make sure it can still get the parts if Crysler goes under. The 2005 one goes in next week or the week after for a good check over.

Buy a new vehicle? I haven't finished paying for the 2005 one yet. Why would I want to take on a new car payment when I can't afford it? I can get anotehr year out of the 1994, then replace it when the 2005 is paid off - if Crysler survives.

And so begins the vicious c... (Below threshold)
SShiell:

And so begins the vicious cycle. Chrysler comes out of bankruptcy and fails to sell cars. Banks, beholden to the US government for TARP money, will be directed to buy Chrysler stock. This will arbitrarily prop Chrysler until Obama and company can wedge the price of oil to above $80 a barrel to stay, thereby propping up the price of gasoline and giving Chrysler another propp to sell its mini cars.

Obama and company will find the only way for Chrysler and GM to make a profit is to bankrupt the country

Mycroft, I know ex... (Below threshold)

Mycroft,

I know exactly what you mean. I have three kids, one is still in a booster seat and the other two are in car seats, a Golden Retriever and a Great Dane. There's no way I could fit my family in a micro or small car. Besides, I live in northern Michigan. With our winters, a small car would be buried by snow and probably wouldn't be seen again until spring.

Well, as one of my Democrat... (Below threshold)
P. Bunyan:

Well, as one of my Democrat friends said last fall: "We're all going to have to learn to live on less."

(To which I responded: "The elections not over yet" [it was still October at the time] "the voters may still choose prosperity over 'less'". But I was wrong...)

The only viable solution ri... (Below threshold)
Zelsdorf Ragshaft III:

The only viable solution right now is to put Republicans back in congress and the senate. Congress is the only power that can head off what this tyrant has in mind.

I live at the end of four m... (Below threshold)
Alan:

I live at the end of four miles of bad, dirt road, in a part of the country that gets a lot of snow. I have to have a big SUV and a 4X4 Pick up to survive. I have pot holes that would swallow a wiener car,
.

"The only viable solution r... (Below threshold)
doug:

"The only viable solution right now is to put Republicans back in congress and the senate."

Granted, but in the meantime the only way for an outraged taxpaying public to end the taxpayer billion $$$ subsidies to the UAW is to shun the new Chrysler. Maybe the zombie company will mercifully fail quickly a second time. And don't look for it to sell bonds to raise capital!

The 'Won' blames 'speculato... (Below threshold)
hermie:

The 'Won' blames 'speculators', but there are many who invested their pensions, 401ks, etc, in funds which bought Chrysler and GM Bonds. These aren't just the 'upper 5%', but regular taxpaying citizens, who had faith in the system that the 'Won' is destroying.

BTW...If the 'Won' can push aside long established bankruptcy laws to favor his political supporters, why would anyone buy US Treasury securities if he could ignore the law and thumb his nose when it comes time to pay them back; or only pay back those who gave him political contributions?

So far, the MSM lapdogs ignore the disaster ahead and just prefer to gush about Michelle's toned arms or Bo's first poop.

hermie - "why would any... (Below threshold)
marc:

hermie - "why would anyone buy US Treasury securities if he could ignore the law and thumb his nose when it comes time to pay them back;"

Good question, why would they.

Weak demand at a Treasury bond auction touched off worries in the stock market Thursday about the government's ability to raise funds to fight the recession.

The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.
As a result you can expect a raise in interest rates, followed shortly by a slowdown in the housing recovery.

Then there's this, China has made no secret of wanting a new standard currency, they have been very secretive about how much gold they have been hoarding, until recently when they announced that they'd nearly doubled their gold holdings from 19 million to 34 million ounces.

The gold had been held for foreign trade by the State Administration of Foreign Exchange, has now been transferred to the bank of China, as part the country's monetary reserves.

barack hussein obama has maxed out the countries credit card.

This is important because it indicates the extent to which gold is being rehabilitated as a monetary reserve asset, not only by the Chinese monetary authorities but by central bankers around the world. It has been clear that gold was being restored as a more important part of the world's financial system, with rising investment demand over the past nine years. The Chinese government's decision to say that this gold belongs in its monetary reserves emphasizes that monetary authorities also are looking at gold with greater interest than they have since the 1960s.

There was no mention of Fia... (Below threshold)
Paul Hooson:

There was no mention of Fiat here, which has an aggressive new business strategy to buy in on both Chrysler and GM's European divisions, boosting their annual sales revenues to over $100 billion a year. Fiat will make a decent attempt to revive Chrysler and make money, although I probably agree that Chrysler likely faces an uncertain future where I only expect the Jeep division to somehow survive, probably purchased by Fiat or TaTa Motors.

hooson - "There was no ... (Below threshold)
marc:

hooson - "There was no mention of Fiat here, which has an aggressive new business strategy to buy in on both Chrysler and GM's European divisions,"

If GM, or the admin forces GM to sell off it's EU divisions it will prove once again how clueless they are. GM's EU divs are, and have been, the only ones turning a profit.

Fiat? Can you spell J.U.N.K B.O.N.D status?

Put another way... they suck.

I wouldnt buy a GM or a chr... (Below threshold)
retired military:

I wouldnt buy a GM or a chrysler if you paid me to take it off their hands.

Marc, my best guess is that... (Below threshold)
Paul Hooson:

Marc, my best guess is that Chrysler cars as we know them today will eventually be gone, with Fiat designed vehicles with Chrysler nameplates taking their place at dealers. Whether these will sell is a good question. Fiat vehicles have never sold well in the U.S. But I predict that Jeep will survive in a fairly traditional style somehow.

hooson - "Marc, my best... (Below threshold)
marc:

hooson - "Marc, my best guess is that Chrysler cars as we know them today will eventually be gone,"

What's your "best guess" based on? Chinese websites that quote how terrible the swine flu was (vice the WHO)?

Is it based on super-secret emails from a "source" claiming AF One was taking obama to NYC from some grand meeting?

I repeat for possible cranial penetration, Fiat is in junk bond status they will be lucky to survive themselves.

And Chrysler, who should have been gone in the eighties, will be brunt toast within 18 months.

More importantly, will Obam... (Below threshold)
914:

More importantly, will Obamas socialism plan bankrupt America?

Hey Marc stop being such a ... (Below threshold)
Paul Hooson:

Hey Marc stop being such a wise guy for a second and think about this fact. Back around 1980 when Chrysler got their first bailout the whole company centered around the K-car style and Omni-Horizon type cars. But then the Chrysler line grew once again. But likely the next generation of Chrysler cars will just be Fiat designs.

Fiat badly wants to sell cars in the U.S., and will make every attempt to sell here. It will take at least 18 months for the first Fiat designs to be sold by Chrysler, so I expect Chrysler to last longer than that. But if Fiat badly fails, then Chrysler is likely out in more than 18 months, but less than five years.

I still expect Jeep to survive in a somewhat tradional design way though. But Chrysler cars will look more like modern Fiat designs.

hooson - Wise guy?... (Below threshold)
marc:

hooson - Wise guy?

Maybe you should stop being a dumbass - fiat is in junk bond status and are searching for any lifeline they can grasp. And obama is dumb enough to give it to them.

As for this - "But then the Chrysler line grew once again. But likely the next generation of Chrysler cars will just be Fiat designs."

Yeah it grew for one reason and one only - government intervention but not the good kind.

When CAFE standards went into full effect by the luck of the draw Chrysler had mini-vans to sell. Light trucks? Yeah they had them to and like the rest of the big three gained big time cash and customers because light trucks were exempt from CAFE.

Shear luck saved them then, they have run out of luck.

> ... if Obama is succes... (Below threshold)
Arthur:

> ... if Obama is successful forcing his will on the bankruptcy court, he will do the same with GM putting the American people are at risk of subsidizing two auto companies.

Money well spent if the results are bad enough to boot Obama out of office.

In the future I will only b... (Below threshold)
Dennis:

In the future I will only buy Ford autos.




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