Little guys are the big losers in bankruptcy

April 30th, 2009 at 10:21pm Annette LaCross

This week’s least newsworthy moment came Thursday, when President Barack Obama announced that Chrysler LLC was filing for bankruptcy and Chrysler’s long-awaited deal with Italian automaker Fiat Group SpA had been signed.

The Chapter 11 bankruptcy filing was as inevitable as the sunrise. All of the competing interests tugging at Chrysler’s remaining assets demanded it — a company as large, as old and as far-reaching as an automaker is left almost no other choice.

And for the most part, it’s what everybody wanted.

The Obama administration won’t commit to a lifetime of financial bailouts for Chrysler, which is, for the most part, what it would be accepting if it allowed the company’s restructuring plan to go through without bankruptcy.

Not to mention that Obama wanted to get as far away from the United Auto Workers union — the unions are among Obama’s strongest allies and, arguably, one of the interests holding the most sway in the White House — as he can before it had to demand greater concessions than those the union approved earlier this week.

Fiat likes bankruptcy because it makes it much easier for the company to pick and choose what it likes from the company’s assets. It can essentially separate the company into two piles — good assets in one, “bad” assets in another — and take only those it wants.

Chrysler’s bondholders, which ultimately forced the automaker’s hand, like the bankruptcy idea, too — they’d just prefer the automaker liquidate its holdings. While most of the more than 45 investment banks and hedge funds, which hold nearly $7 billion in Chrysler debt, indicated they would accept the government’s offer of $2.5 billion, a few held out.

In Chapter 7, or liquidation, those bondholders would be among the first to get paid — and would likely walk away with far more than the paltry $2.5 million the government was handing out.

That led Chrysler right to bankruptcy court.

For Obama, it’s good news. It means he will be able to deflect criticism — for the next 30 to 60 days, at least, which is when the company is supposed to emerge from this “surgical” bankruptcy — to the greedy bondholders who broke the back of the brave American car company.

Left behind, of course, are the workers at Chrysler and its supplier plants, who found out rather abruptly Thursday that they’ll be out of work for the next 30 to 60 days while the automaker figures out how to be a) bankrupt and b) owned by Italians.

Then again, it’s also enough time to retool a few plants to produce re-badged Fiats.

Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.

Entry Filed under: chrysler, auto industry