I’m hoping Ross can add the view from Michigan later, but wanted to offer some initial thoughts. Here’s the NYT report:
Chrysler, the third-largest American auto company, will seek bankruptcy protection and enter an alliance with the Italian automaker Fiat, the White House announced Thursday. The bankruptcy case, which officials envisioned as a swift, “surgical” process, was filed in United States Bankruptcy Court in New York, with the first hearing scheduled for Friday morning. It marks the first time a major American car company has tried to restructure under bankruptcy protection since Studebaker in 1933. . . .
[President Obama] emphasized the speed with which the administration expects the bankruptcy process to be completed, saying that it would be “quick, official and controlled” and that the lives of those who work at Chrysler or live in communities where the company has its operations would not be disrupted. Mr. Obama said the partnership with Fiat “will give Chrysler not only a chance to survive but to thrive in the global auto industry.” He said it was made possibly by the series of sacrifices by Chrysler stakeholders, such as the United Automobile Workers union, and said more sacrifices were in store.
But the president was pointedly critical of investment funds that rejected the government’s settlement offer, saying they hoped to benefit from the sacrifices of others while making none of their own. “I don’t stand with them,” he said in a stern tone. . . .
Last-minute efforts by the Treasury Department to win over resistant Chrysler debtholders failed Wednesday night, and the administration’s frustration was evident in President Obama’s remarks. .
But a group of Chrysler’s secured lenders asserted that the administration was skirting bankruptcy laws by forcing them to take a larger loss on their debt than other stakeholders in the company. They said their proposals to restructure Chrysler had been ignored by the government.
“The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well-being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades,” the group, which calls itself the Committee of Non-TARP Lenders, said in a statement.
Members of the committee include units of Oppenheimer Funds, Perella Weinberg Partners’ Xerion Capital Fund and Stairway Capital Management. The funds emphasized that their investors are major pension funds, teachers’ unions and school endowments.
Any hedge fund manager who thinks that forming a group called the “Committee of Non-TARP Lenders” is going to appeal to anyone during the current financial crisis is smoking something pretty powerful. The only group of people that Americans hate and despise more than executives of financial services firms that took bailout money and paid bonuses are executives of financial services firms who didn’t take government money and made a profit.
If any public institution has money in these funds (paging CALPERS), they should get it out now. If you are a company that has money in these funds, get it out now. If you’re a private investor, get your money out now. These slimy self-interested pond scum just forced a major corporation into bankruptcy so they could get a few more cents on the dollar than they would have under the government plan.
To put it bluntly, they may not have had toxic assets, but they now are toxic liabilities that have put self-interest over the collective good.
But they’re not the only ones who should suffer. There are others who must shoulder their share of the blame, including Cerberus and those Chrysler executives who failed to see this coming.
But there’s another villain here, one whose role has received little or no attention in the mainstream media: Daimler Benz, the parent company of Mercedes, which bought Chrysler for $36 billion back in 1998. From today’s WaPo, which is worth quoting at length:
After the economic slump of 1991, [Chrysler] rebounded and was very profitable. It rang up $3.7 billion in profit in 1994 and $3.5 billion in 1996, when Chrysler’s market share hit its highest level since 1957.
That attracted the attention of Daimler-Benz, which acquired Chrysler in 1998 for an eye-popping $36 billion. The company talked about the synergy of an up-market German company with a mid-market American firm. Daimler boss Jurgen Schrempp described the DaimlerChrysler match as a “marriage made in heaven.”
But the marriage was troubled from the beginning. In December 1998, senior executives traveled to Seville, Spain, for the newly formed company’s first management retreat. The American executives — far from their home in Auburn Hills — found themselves outnumbered by the Germans. One night, the gathering turned into giant party. Germans and Americans toasted their new company. One executive began playing the piano at the bar and Schrempp led a loud, rowdy chorus in song.
Just as cultural barriers were crumbling, Schrempp picked up his assistant and threw her over his shoulder. Grabbing a bottle of champagne, he shouted “See you later, boys” and exited, several Chrysler and Daimler executives who were present remember. To some, it was a clear message: Schrempp did what he wanted.
The illusion of “a merger of equals” began to dissolve after that trip to Spain. Schrempp took control of DaimlerChrysler, and Chrysler lost its independence. Money was poured into the luxury brand Mercedes, while Chrysler’s quality deteriorated. The U.S. automaker’s research and design team was moved to Stuttgart, Germany. A joke spread around Detroit: How do you pronounce DaimlerChrysler? Daimler; the Chrysler is silent.
“Daimler left Chrysler a hollow company,” [an industry analyst] said.
Ultimately, the transnational marriage turned into a disaster for both companies. Daimler, eager to avoid paying for Chrysler’s pension obligations, ended up essentially paying to sell Chrysler nine years later. By that time, Chrysler had slumped to fourth place in the United States, its only market.
Here’s a question for those hedge fund managers: how many of them own Mercedes? You want to bet it’s a large number? How many Chrysler executives got rid of theirs after Cerberus bought the company? You want to bet it’s a very small number?
If you own a Mercedes, trade it in. If you’re buying a new car, strike them off your list. Make them suffer. Remind them that there is a price for such arrogance. Winnow their American market until they start paying the cost of helping to destroy a major American employer.