Just a couple questions about the Chrysler bankruptcy

Now that all the ecstatic moaning of the press surrounding the president’s first hundred days has subsided, we can return our attention to the fact that things are worse in Pakistan, Afghanistan, and Iraq, the global economy is still deteriorating, the U.S. deficit is still ballooning, and I am experiencing sudden dizziness and a slight fever (although I think it is just from listening to replays of the Vice President’s remarks on the Today Show this morning.)

So, to stay on top of the news, let’s start with a few questions about the auto industry:

Is anybody stopping to work the numbers on this Chrysler deal? How much did we have to pay for the privilege of having Chrysler go bankrupt in springtime rather than winter? Isn’t it true that bankruptcy was always the best outcome and that this was just a very costly stall to make the unions feel their members were being taken care of?

Aren’t the unions getting a disproportionately large chunk of Chrysler and GM at the expense of creditors and shareholders? What’ll happen if the companies go belly-up again in a few years and the unions lose the stake they got in exchange for the pension money that they were owed? (Hint: The taxpayers will cover it again after having shelled out a fortune now to protect them. )

Wouldn’t it have been cheaper to let the companies go bankrupt, sell off their good assets, pay off the workers who got fired, retrain them and invest the billions in incentive programs to develop new, green transportation technologies? And are the unions really the people we want to be the dominant owners of these companies? Do we really think it is either right or in our collective interests to reward union leaders (as opposed to rank and file workers) who played a central role in forcing into place the unsustainable business models that essentially killed GM and Chrysler?

Isn’t a pattern becoming apparent here? Can’t people see that the deals the government cuts — whether it is forcing Merrill and B of A together or “bailing out AIG” or the auto deals — are actually lousy? Isn’t anyone other than Ken Lewis going to argue for a discussion about what is the appropriate thing for the government as an owner to do when the national interest conflicts with their fiduciary responsibilities to other shareholders? 

And when is anyone going to notice that the “white knight” that is going to save Chrysler is one of the world’s crummiest car companies, one just back from the brink itself and that they are getting their stake in Chrysler for a song? Or that much of the benefit from this deal will accrue to stakeholders outside the U.S.? Also, for the fun of it, ask yourself if we would be doing all this to secure this deal if the purchaser in question were Chinese car manufacturer Chery? (Hint: we would not.  Even though it would likely be a much better deal for all concerned.)

Another question is who are the creditors and if any of them are financial does the U.S. have a stake in any of them? Is it using its clout in the financial services sector to influence the outcome of the auto deals? If so, how, with whom, and in whose interests in the long-run?

After we get answers to these questions, I will offer my opinion of the deal. In the meantime, as with everything else right now, I am just hoping for the best (and, like the proverbial Bavarian at lunchtime, expecting the wurst.)

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