Chrysler’s future

By Felix Salmon
April 30, 2009

It’s surely a good thing that Chrysler is filing for bankruptcy: trying to get unanimous consent for a restructuring from dozens of stakeholders — especially small bondholders — was never going to happen on a foreshortened timetable, and it’s going to be much easier for Chrysler to get out of onerous obligations to dealers when a bankrupcy judge orders it. At the same time, the downside of bankruptcy — the fact that the public will be increasingly unsure about the company’s future — is here already; it’s unlikely to get worse, especially so long as Barack Obama makes it very clear that he’s committed to Chrysler’s continued existence as a going concern.

The broad outlines of a deal are already clear: Fiat will take a 35% stake in the company and manage it; the UAW will have a 55% stake; and all the government’s TARP funds will be converted into a 10% stake. Present-day creditors do not get equity but rather get cash; the sticking point is exactly how much cash they will get. And of course present-day shareholders — Cerberus and Daimler — are wiped out, and top management will be replaced.

All of this is necessary but not sufficient for Chrysler to have any hope of a long-term future. One of the more interesting things going forward will be how Chrysler manages to turn itself into a smaller, nimbler, change-oriented company while being majority owned by the UAW — which is nobody’s idea of a change agent. In general, if you need a dose of creative destruction, big unions are not the place to look.

On the other hand, it’s not as though anybody else has been able to manage Chrysler any better, and now, by definition, workers’ interests are aligned with the owners’ interests, just because the workers are the owners. Given how everything up to now has failed, this structure is at the very least worth a try.

As for the smaller creditors who stood in the way of a deal which would have avoided bankruptcy, I have very little time for their plaints. They’re offering nothing which will help Chrysler in the future: they just want to get the maximum return on selling the bonds they picked up for pennies on the dollar. I hope and trust that the bankruptcy judge will give them short shrift.


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Absolutely right Simon- bankruptcy was the only answer. I would hope that when the workers become a major owner, that they will act in the company’s best long term interest, but I have my doubts. It will be interesting to see if rank and file owners have the same short-term self serving interests as so many other stakeholders.

Sound like British Leyland redux.

We know how that one ended.

Posted by Thomas Pindelski | Report as abusive

Not in this universe.

BL was owned by the Government. Worker ownership was “Red” Robbo and fellow convenors’ alternative turnaround plan, which was rejected. Funny how these things happen.

Well, good. I’ve been saying for months that a bankruptcy court is the only forum for untangling the Gordian Knot of problems facing GM and Chrysler.

The one thing that makes my spider-sense tingle is wondering how many of the balking bondholders also hold credit default swaps on Chrysler, which they know we taxpayers will eventually cover via more truckloads of money to AIG.

Still and all–the Fiat alliance, UAW forced to play constructively by their ownership stake, a judge with the power to rewrite dealer and supplier agreements…it’s about the best outcome you could have hoped for. We should have done it months ago.

Let’s hope it sets a tone for things to come.

Posted by Craig | Report as abusive

Yep, bankruptcy is the only answer. BUT, I will never own a car that is made by a company that is majority owned by the UAW. I can just see that product now.

Posted by Billy | Report as abusive

Don’t worry about the fact that 55% is owned by UAV: basically that’s the business model in italian industry where the Unions have more power than you can expect. So Fiat is already able to manage this relationship (that’s the italian way to run the business…). By the way I’m very proud that an italian company saves the Chrysler!

Posted by alessandro | Report as abusive

The UAW has produced shoddy junk for years. Union seniority perpetuates last lasting incompetence instead of hard work and expertise. The cause of Detroit junk is now going to be the solution? ha, ha! My vote is with blogger “Billy” to NEVER own a vehicle built by UAW owned Chrysler.

Prediction – Chrysler will be permanently bankrupt within three years.

Posted by George | Report as abusive

Many other manufacturers were at the brink of Bankruptcy before, Nissan for example emerged with its cutting design and novel products like Murano and FX. Ford survived too because of Edge and Fusion to a great extent and ditching vehicles like Windstar. Basically Chrysler does come up with hits sometimes. With Fiat onboard, their designs must get more competitive with boring ones from Japan and else where. They seriously need to improve on their powertrains esp 4 cylinder ones for small midsize cars.

The only thing I really want them to do first is to fix their vans design in mid refresh cycles before Honda and Toyota come up with theirs and wipe their market share.

Posted by Bhawar | Report as abusive

The UAW is going to run their Chrysler company smart enough to compete with BMW, Toyota, Honda, VW, ………. ha,ha,ha,ha,ha…. thats hilarious!

Posted by F. Musster | Report as abusive

Chrysler does not have CDS written on it as the company has no bonds.

There is LCDS written on the financial sub but not the auto co parent and even that amount is negligible.

Posted by swaps | Report as abusive

I would hope that the focus of Chrysler would change from making money to putting out a good product. Making fewer more dependable vehicles can often add up to larger profits as buyers require fewer incentives to buy again. I do think that the unions will have to develope a new mindset of how much value they can add rather than how much they take out of the company. If the goal is to make vehicles that last for 300,000 miles with only routine maintenance that would be a step in the right direction.

Posted by f belz | Report as abusive

I made a massive error and purchased a 2007 Dodge 4 wheel drive pickup in late 2006,l just after I retired. I also gave an additional $900 a year later to purchase a life-time warranty on the power train. Now, I’m reading that Chrysler will go bankrupt and their warranties will only be honored if one petitions the bankruptcy court for such. I can imagine all the owners of Chrysler products rushing to their attorney’s office to file a federal bankruptcy claim. NOT! Anyway, I have learned my lesson. Never trust anything that is said or done by any entity that has ties to the US Government in any way, shape or form. And the saddest part of all, I didn’t even get kissed.

Posted by JOHN STONE | Report as abusive

Allesandro, that may be the business model in Italian industry, but this is the USA. The old saying in the USA is “never buy an auto built on Monday”. And that is because of the union workers and their habits. Now my saying will be “never buy a Chrysler, because I know the UAW.

Posted by Billy | Report as abusive

As far as the ownership of Chrysler is concerned, is there any reason to believe that Chrysler will ever again qualify to become an exchange-listed stock? Having a share of a stock without a potential buyer only has the value of a tax loss.

Regards, Don

Posted by Don Lloyd | Report as abusive

I just hope that Fiat quality, has improved otherwise in a year or two the company will be gone.

Wow! Restructuring is the best thing to call this revolution. FIAT is by far getting the best deal here. By entering into the equation today, it is not unlike those deal seeking bondholder’s Salmon crtizises. However, FIAT will be a leader. Imagine the challange in front of FIAT, cutting the working hours of the 50% shareholder. The UAW will likely pressure the new company to continue over-supplying the market to keep jobs. That will lead to lower profit margins and a “lack of creative destruction.” Unless FIAT’s got something up its sleave.

OOOO this is just terrible. My husband has worked at a chrysler dealership for 15 years. What is going to happen now? Goodbye paycheck and insurance.

Posted by Julie | Report as abusive

Bankruptcy makes sense only if Chrysler addresses its core issue of how to compete: vation_in_practice/2009/04/innovation-at -the-us-automakers.html

UAW, TARP, Italian owned. UH O !! I see trouble! The UAW is the bureaucracy of the auto manufacturing sector. America needs a separation of business/state. I wish a truly innovative and practical auto sector existed in America. Of course I wish a truly innovative and practical government existed as well. And let’s add an innovative and practical public to that order as well.

Posted by jason | Report as abusive

Hurray! The cars that are made by the new Chrysler are going to perform just like the US government! HA HA HA

Posted by John | Report as abusive

WAIT A MINUTE…. The UAW owns control of Chrysler, but ALSO owns control of General Motors and Ford labor monopoly ……. is the government stupid??

Do you ever think the UAW will picket Chrysler? No. Do you think they would strangle GM and Ford to shut down those plants and push Chrysler products. Yes! Is this nuts or what?? Has no one heard of conflict of interest?

UAW control is the most bone-headed action imaginable, and absolutely guarantees destruction of the industry — all paid for with YOUR and my tax money.

Posted by david | Report as abusive

Can someone do a survey for us taxpayers on our so-called investment in Chrysler ….. how many MBAs are there in the UAW rank and file? business degrees? Experience running multi-million dollar corporations? Engineers? Researchers?? Oh ZERO!! What a surprise!!

Yeah, the occasional UAW high school diploma should be enough to compete in today’s auto industry …….

Posted by rick | Report as abusive

Finally the auto workers unions UAW and CAW can show that they are innovators, something they certainly did not show in the past. Both management and the unions were excellent at maximizing short term gain at the expense of the long term health of their industry. The environment did not ever figure in their designsm: gas gobbling dinosaurs. Good luck!

Posted by henk wevers | Report as abusive

MBA is not a good answer to much of anything. I worked for two companies that had corp take overs. They sent in the bean counters who fired all the people who motivated. By the way Bush is an MBA, look what that got us.

Posted by jim byers | Report as abusive

Pentagonal bankruptcy! (Pentagon is one of the shape of icon for Chrysler)

Posted by Jalesh Dikshit | Report as abusive

Wonderful. A car company that makes junk in Europe and only popular in its home county buys the American car company that makes junk. What are they going to make now?

Posted by sgarcia | Report as abusive

Regardless of the Fiat/Chrysler deal, thousands of people will lose their jobs anyway from plant and dealer closings anyway.

Posted by Mike | Report as abusive

This reminds me of Packard and Studebaker getting together years ago. Someone described that as two drunks helping each other across the street.

Posted by Darrell Hunter | Report as abusive

I feel bad about the people that will lose their income do to this mess, however, Chrysler is a malfunctioned corporation, they deserve whats coming to them. producing vehicles that are not worth the prize. I got rid of my pt-crap and I recommend any body reading this article, don’t do it, and if you did get rid of it as fast as you can, You will thank me, before you regret it.
THEY SUCK!!!!!!!!!!

Posted by bern | Report as abusive

>A car company that makes junk in Europe and only popular in its home county

We don’t have counties in Europe, we have countries.

As far as the junk I do remember my first arrival in US somne 20 years ago as a tourist, and how two hours later I had to call AVIS because I could not turn off the engine of the wonderful Ford Escort I rented. The key would just not come off. Engine keeps running. They had to open the trunk and disconnect the battery, shaking their heads saying: you should have rented a Japanese car.

The following days I was quite surprised to see many broken cars alongside freeways. Because you see none on the Italian motorways. Ask any Italian tourist what they remember of US: broken cars along the freeways. So we really don’t understand this reliability thing, maybe its your mechanics that are used to fix truck-like things.

Fiat Auto makes Ferrari, Maserati, Lancia, Alfa Romeo and wonderfully designed Fiat like Punto, Idea, Croma that are legendary for reliability. Outside of US and old stereotypes I mean.

As a Maserati owner I don’t call my car junk.

Posted by ga | Report as abusive

Gosh, what an intelligent set of comments, Felix, you should be proud.

I had one “careful now!” moment though:

[by definition, workers’ interests are aligned with the owners’ interests, just because the workers are the owners]

Careful now! It isn’t “the UAW” which is getting the shares. It’s the UAW pension and health benefits fund, as fiduciary for its members, a significant majority of whom are retired, and who in any case has a duty to only consider the interests of its members qua beneficiaries of the scheme, not qua workers. I seem to remember that Robin Blackburn wrote a whole book based on this mistake – “pension fund socialism” isn’t actually consistent with the law as it stands.

Posted by dsquared | Report as abusive

>>The old saying in the USA is “never buy an auto built on Monday”.

Sorry, but the Montag-Farzeug (Monday car) is a say from holiday-prone Germany. Come to Germany and talk with the locals about their experience with Mercedes and their Montag cars (especially bad compared to Fiat quality).

Posted by drhengel | Report as abusive

>>car company that makes junk in Europe

Not sure where that comes from. You must not have been to Europe in the last 30 years or so.

If you don’t know the names of the Fiat designers above, you know very little about the history of car design and car quality. VW Golf, Ford Focus, Lexus, Bentleys, Volvo and many others not to mention the legendary Italian brands now all own by Fiat are all designed in Turin, the Detroit of Italy.

There is a nice book written by an American writer and journalist that every American should read: Jeremy Rifkin, “The European Dream”. Which unlike the American one, is actually a reality. Especially nowadays.

Posted by bc | Report as abusive

Reading all of these comments just exemplifies the sad state of the American intellect. Anyone who would want an American company of this size to fail is either ignorant or stupid. Should we send all of our revenue to the Asian car companies? Gee, lets look at the oil situation. How’s that workin out for ya?

Posted by sad | Report as abusive

I don’t know if “swaps” is checking back in, but I was a bit surprised by your statement:

“Chrysler does not have CDS written on it as the company has no bonds.”

One of us is clearly missing something, and I’m happy to acknowledge that it might be me. But…no bonds? All I’m reading about is Chrysler bondholders and how they sank the out-of-court reorganization. Here’s an article at Seeking Alpha about Chrysler bondholders and CDS: redit-default-swaps-may-be-playing-a-sup porting-role-in-chrysler-bankruptcy-fili ngs

So I really don’t follow your post at all.

Posted by Craig | Report as abusive


Regarding your hope that the fund-owning secured debt holders get short shrift, because they aren’t offering anything to help:

The rule of law in bankruptcy, based on long, long years of precedence, is that their are classes of rights and interests, some superior to others.

The judge will be very unlikely to overturn this rule of law and establish some new policy and precedent – it just ain’t gonna happen.

The auto task force has made a serious policy mistake here in ignoring this and attempting to bully the players, here and with the GM case. Their blindness to this will create, for them, a series of unforeseen consequences.

Posted by Kent Howell | Report as abusive

It makes me sick to see all these negitive comments about Chrysler. I am on my 5th New Chrysler product and have never had one issue.
Ignorance on the part of people acting like a union who is concerned with there employees well being is some kinda sickness. We would have very few issues in this country if American’s would wake up and realize they are the one’s truly hurting our economy by sending money over seas for every product that exists. How can a country survive without a vibrant manufacturing industry as its back bone. Retail is not a backbone to support a country.

I agree with Mike, Chrysler makes good products. I own two Chryslers a 1999 and a 2009. Chrysler will survive if consumers overcome their irrational fear of the pending bankruptcy. I expect Chrysler to be around in 2019 when I need my next car. My next Chrysler will be a plug in electric. The idea that any American would by a foreign car in these economic times is completely alien to me. Dr Britt Borden.

Posted by Dr Britt Borden MD | Report as abusive

None of the restructuring, loans, partnership with Fiat/UAW, etc. is going to solve Chrysler’s problems, only make them worse. Until Chrysler and the other auto makers start making car/trucks that many buyers want but can no longer find, they will continue to rebuild their old ones and sit on the side lines.
I need another truck for my expanding business (as well my brother in law and others have similar situations with their business), yet when I just a few weeks ago went to a Chrysler dealership, they wanted to sell me a truck with a large V8, a short bed, electric windows/locks, an automatic, or settle for a single cab. They stated this is what most want, which is utter BS as I know that I am offered money by passers by for my more practical extended cab T100 with a manual transmission as you simply can no longer find a practical work truck any more. I know others who are also sitting out purchasing a new vehicle for similar reasons and Detroit (and even now Toyota and Nissan) simply do not “get it”. Maybe Kia or Hyundai will jump in and start making practical trucks as the others have certainly dropped the ball.

This is a response by Dr Britt Borden to Carl Strohmeyer’s comments. Yes, Carl Chrysler does need to be more reactive to the market, but that does not diminish the fact that Chrysler builds a good product, and in some areas Chrysler is responding to the market, I, Britt Borden, own a new Challenger sports car, and the Challenger proves that Chrysler can not only build a good product, but it can also respond to the market. Please direct comments to Britt Borden and his Chrysler Challenger comments. Thank you, Britt Borden.

Posted by Dr Britt Borden MD | Report as abusive

Now what exactly does FIAT stand for …. oh right, Fix It Again Tony…….

The destruction of the American automobile industry by the government in collusion with the archaic UAW will go down in history as THE tipping point in America losing global economic leadership, literally the end of a 50 year decline in American manufacturing.

What is the ONLY difference between the exceptionally high quality of Toyotas made in America with American management and American workers, and the trash made by Detroit??? The UAW.

This truly is, the end of the road.

Posted by gm is next | Report as abusive

I agree with Dr Britt Borden that the Challenger shows that Chrysler can both build a good product and react to the market.

Posted by Kurt Fanta | Report as abusive

Let me start-FORD or FOREIGN!

I own A Chrysler Town and Country and it has been a lemon. I bought American because I thought I was being patriotic and loved how this van was so comfortable and roomy. It’s a 2001, and we had to replace the engine at 80,000 to the tune of 2,500.

I will never buy a Chrysler or GM product again. I am disgusted and completely irritated at the government intrusion into this industry. Chrysler should have gone out of business years ago and will go out of business in the next few years. We will lose all of our money that we have, as taxpayers, spent-against my wishes. My husband is an engineer in Detroit and lost his job recently. Who protects us? We are not union, so we have no rights.

Again-Ford or foreign-that’s my motto.

Posted by Jennifer Sharoun | Report as abusive

Chrysler can rot in hell. They bought AMC to get the Jeep line and decided to crush all the old Rambler parts. Rescuing orphan brands has a huge niche in the automotive hobby world. When Chrysler becomes an orphan I will dance on their empty dealer lots. Thanks for nothing dickweeds.

Posted by jaqes | Report as abusive