Chrysler Will Enter Bankruptcy, Partner With Fiat, Warranties Backed By US Government
President Obama announced today that Chrysler would seek bankruptcy protection and enter into an alliance with Fiat. The president told reporters that a "small group of speculators" made up of hedge funds and other investors held out in the hopes that the US government would bail them out. That didn't happen.
The NYT has the numbers:
A senior White House official said that the case would begin immediately, and that the government would provide debtor-in-possession financing in a range of $3 billion to $3.5 billion, so the company can continue to operate normally.
Once Chrysler restructures, the company would receive $4.5 billion in financing to restart its operations, for total American government support through the bankruptcy process and afterwards of up to $8 billion.
That is $2 billion more than President Obama initially said the company would receive if it successfully reached a deal with Fiat.
Chrysler has already received $4.5 billion from the government, under a bailout plan put into effect by the Bush administration in late December, after Congress rejected legislation that would have provided federal aid.
The Canadian government also is expected to provide $1 for every $3 in American support, the official said, meaning Chrysler could receive another $2.6 billion.
Obama encouraged American consumers to continue to support Chrysler, emphasizing that it would be business as usual during the bankruptcy proceedings — which are expected to be as short as 30 days.
For those consumers concerned about buying a car from a bankrupt automaker, the president promised that Chrysler warranties would be fully backed by US government.
The WSJ says the holdouts, calling themselves "Non-TARP Lenders," claim that their attempts to restructure the company's debt were "flatly rejected or ignored."
Chrysler Bankruptcy Plan Is Announced [NYT]
Lenders: Offer To Restructure Chrysler Debt Has Been Ignored [WSJ]
(Photo:Ralph Krawczyk Jr)
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Comments:
this == fail...but I wonder if it will turn out better than GM long term.
Question - If Chrysler goes bankrupt, would that null-and-void their contracts with the UAW? If so, that would be a quick way around all the stupid negotiations with the "We'll burn this ship before we save it" attitudes the UAW seems to love to toss out....
I really like the part about the warranties for a company that makes CRAP to be backed by MY tax dollars. If they made good vehicles to begin with, they wouldn't be having this problem.
Hear that sound?
My grandpa rolling in his grave.
Chrysler to merge with Fiat by fiat.
Oh great. We get taxed enough and now we see just how well used our money is....
And the auto unions still won't budge to lower wages to reasonable levels.
Corporate_Guy wrote:" I just hope the creditors get less than what they could have gotten before bankruptcy. They deserve it." Why? They lent the money to Chrysler in good faith, and Chrysler is unable to pay them back--we have a legal process for such contingencies, it's called "bankruptcy."
I think I would much prefer Chrysler dies a horrible death, creditors take over and sell off their remaining assets, and let someone with a fresh, inspirational business model rise up to take their place (you know, like Capitalism SHOULD do it)
does anyone know whether or not the UAW is still getting the 55% stake in Chrystler?
The first dominoe topples...
This had, and continues to have, disaster written all over it.
Remember to smile widely, Chrysler workers, as you greet your new National Socialist overlords.
@SanDiegoDude: "We'll burn this ship before we save it"?
Seriously, do you even read the news? Or do you just filter out facts so that you can feel justified in your silly, anti-union notions?
The car companies are in this mess because of mismanagement, not because the people that make their cars want to destroy their employer.
Labor agreements are not null and void in bankruptcy. Which is probably a good thing, since many of the workers would wind up making minimum wage while the executives continued raking in the big bucks.
Well, the NWO strikes again. Fiat is part of the Buildabear Group, who really runs the world!
Now where is my anti-abduction helmet?
@fredbiscotti: A reasonable person will agree however that auto workers get paid waaay to much for what they do.
Especially when (like in Canada) the government may get stuck paying pensions. Not to mention the super-bailouts getting handed out currently.
Maybe if they made cars people wanted, this wouldn't happen.
That said, I love my little Honda. <3
Err... that was odd. That should just read
"I Hate Illinois Nazis"
Here's what I've been told about the warranties. The government is only backing the warranties for those who purchased Chrysler cars during this restructuring period. Those of us who own Chrysler cars and are partially through warranty periods are left out in the cold. I have an extended warranty that is good until 2011 and now it's worthless. I'm trying to get the balance refunded, but I've been laughed at and told to go deal with the dealer I purchased the car from because they're my last hope.
How the hell is letting a failed company go bankrupt socialism?
That is the very essence of the free market.
question B: without Invoking the red scare and the lessons your pappy taught you in the 50s, what's wrong with socialism?
@SanDiegoDude: I read that all contracts can be broken via bankruptcy. That includes union deals. A comment from some official had said that a bankruptcy judge would be crazy to break the new union agreement and everyone expects the agreement to make it through bankruptcy.
Oh and don't let anyone tell you the unions did not cause this. If a company cannot cut off bonuses, fire workers, and drop life time cushy benefits and pension options while they are generating no profits, they will fail. These union agreements directly caused this failure. There is a reason management went with bigger engines and more expensive add-ons in these cars. They hoped that a customer would easily pay more for stuff they did not need or for things that should have been standard. After gas spiked, customers were no longer willing to pay extra for that v6, alloy wheels, or better stereo. And it turns out when buying a bare bones 4 cylinder, the foreign companies had the US auto industry beat. Make no mistake, the "bad" management decisions were a result of higher costs due to the union.
@dave_coder: How it was explained to me by a friend whose family has a long legacy of working in the big three industry (they all live in Michigan) is that when Toyota, Nissan, et. al. decided to begin producing cars in the U.S., they purposely avoided unionizing, and went to great lengths to discourage unions. Toyota pays their workers about $50 less than the unionized employees of the big three do - but Toyota workers are being paid $150 an hour! So in the bigger scheme, when you really factor how much these workers are all being paid...$50 difference doesn't seem so big.
@Lincolnsbeard33: It's actually common practice for something this important (i.e. on the level of an auto warranty) to be backed by the government during bankruptcy.
I will agree with you that the UAW average is WAY too high for the work being done, but others on here won't so be ready...
@ElizabethD: Your grandfather does ecstasy, post-mortem?
No, I kid. His rolling is joined by a large portion of my deceased relatives as well.
@ChrisC1234: Your tax dollars don't pay for anything unless one of the companies goes under and only if people make warranty claims. Plus this only effects cars bought after the plan is setup. Cars bought before the announcement are not covered.
The most recent number I have seen puts the average pay of a domestice UAW worker at $28/hour. Toyota and Nissan workers are paid less, around $20/ hour, I believe. The hourly wage numbers of $70+ per hour include the cost of pensions, health care, etc. I would really find it hard to believe a Toyota worker can pull in $300k per year, but I could be wrong.
What's going to happen with the investment group that purchased Chrysler from Daimler? They bought it and then refused to back/help it, and now the US government is going to fix Chrysler, will the owner profit?
@pecan 3.14159265: Where on earth do Toyota line workers get paid $150 an hour?
From: [www.aftermarketnews.com]
via the Detriot Free Press, 2007 (apparently)
Toyota Motor Corp. gave workers at its largest U.S. plant bonuses of $6,000 to $8,000, boosting the average pay at the Georgetown, KY, plant to the equivalent of $30 an hour. That compares with a $27 hourly average for UAW workers, most of whom did not receive profit-sharing checks last year. Toyota would not provide a U.S. average, but said its 7,000-worker Georgetown plant is representative of its U.S. operations.
@SanDiegoDude:
The Bankruptcy Judge CAN void the Union agreement if asked to by Chrysler. However, the expectation is that Chrysler won't ask for the new agreement to be voided.
@WiglyWorm: Who/what, exactly, is this "Illinois Nazi" you're referring to?
(I'm hoping it's not President Obama, because then you'd be a complete idiot.)
@wgrune: Ahh, apologies for the $150 number. That was anecdotal from a friend and inaccurate...though at some point, I did see that number floating around somewhere on the news.
I want Slate's Explainer to explain one thing to me: What exactly do auto workers do if robots are putting together doors and such? Do they watch the robots? Maintenance? Or do robots not do anything at all, and they actually piece together cars?
@pecan 3.14159265: Where is that $150/hr number coming from. I've always heard union workers are "overpaid" but never heard a rate like that. That works out to a bit over 300K/year, which is waaay too much, even for skilled labor. If that's what they've been getting paid, then they're not getting any sympathy from me. They can all go retire.
In other news, Fiat S.p.A. announced that they would be renaming themselves to Fiao. This move was spurred by the old joke to ensure it remains current. Fix It Again, Obama!
Hmmm, well, I live in an auto town. The average CAW worker makes $35 an hour (from the CAW themselves). The average worker at the local non-unionized Toyota plant makes $33.45 an hour (published), which, considering Cambridge is one of the cheapest urban areas here to live, is pretty damn good and not unfair at all.
The CAW is upset because they aren't getting dues. They actually picket the WORKERS at the Toyota factory to get them to join the union. The workers say, firmly, "no". They like working for an employer that respects them, that they don't have to fight with, and, most importantly, willingly gives them the same benefits and pay that the CAW workers have.
Let me give you some history to prove that unions (not just the CAW) in general just don't know when to give up:
IAW - March 2008
CAW women - February 2005
It goes back before then, because I know there was another push back sometime between 2001-2003, but of course, not a lot of newspaper articles online from that time.
Always rejected, always told to go away, but they won't give up. You would think after the second time they would have figured it out. Now the company hires lawyers to fight union votes, not because it wants to stop a union going in there, but because the unions piss off the *workers* so much.
The conditions aren't bad either, I've known people who worked there, and while it's monotonous as hell (what assembly line work ISN'T?) I have never heard a peep regarding working conditions. Now, my dad worked for a unionized auto plant (and a unionized tire factory before that), and not only is it not in business anymore, but the conditions were ridiculously bad.
@pecan 3.14159265: doesn't matter if its 30 or 55, companies with union ownership that high have little history of success.
@wgrune:
One more note on pay, I worked as a junior year 1 electrician's apprentice (actually, for the first three months I was just an electrician's assistant due to apprenticing laws here) and I was paid $16+ an hour two years ago by a non-union auto parts manufacturer. That was actually the highest anyone I know of that started out as an electrician got paid in their first year, including in union places.
I find it incredibly hard to believe the average wage is $20 an hour at ANY auto plant (union or not) considering this place was considered "cheap" by fellow workers when it comes to pay.
@vermontwriter: I really feel bad for you. I bought a Dodge a while back with the extended warranty and that ran out just a few months ago. In fact I sold the Dodge 4 days before the extended warranty ran out. But I assume that you already saved what you paid for the extended warranty, I did in the first year. So look at the bright side.
I think the best thing you should do is sell your car. If it was anything like my Grand Caravan, it is simply a ticking time bomb until the next +$800 repair. Also I don't know what car you have but say you paid $20K for it new, your looking at $4-6K at CarMax now. That is a good down payment on a Honda say.
Finally when I got the extended warranty after a lot of haggling the dealership would no longer agree to lower price, so I got them to throw in oil changes, tire rotaions, and a cleaning/detailing certificate. The dealership was out of business in less than a month. The new dealership would not honor the old ones papers. That ruffled my feathers at the time, but again I came so much ahead on the repairs of that turd of a car that I like to look at the bright side and not care anymore.
@dave_coder:
I look at it more like most people get paid waaay too little for what they do.
We should all be able to find a good job with decent pay, benefits, and pension. Just because it's unheard of these days for most people doesn't mean auto workers are evil for having it.
@shepd: What I'm wondering is, what do the auto workers do? Is their job extremely technical in nature? I can imagine structural engineers get high pay because there's a great deal of education involved, but I never considered auto worker jobs to be low-education jobs by any means. But if the environment they're working in is dangerous in any way, or if it requires a good amount of mechanical and technical expertise, I could see how they would get paid a lot more than joe schmoe.
@Tmoney02: But I think it does make a difference because if they own 55% that means they own the company, and can have power over it, right? Or does a union technically not have any power because they're not a company, or are subjected to a board with veto power?
@pecan 3.14159265:
Not claiming to be an expert, never been to a car factory. But I will note that just because they always show a couple robot arms in the commercials doesn't mean robots build the cars. (Not that you said it, I've seen a few comments on Consumerist to that effect.) Real people do need to assemble the vehicles. There is at least some amount of mechanical/technical knowledge and physical labor.
@Corporate_guy: yes, i'm going to second that. i don't even care if 100% of my 401(k) is invested in one of those hedge funds. the executive branch REPEATEDLY said there would be no more money unless certain concessions were made. wipe 'em out.
I just hope the creditors get less than what they could have gotten before bankruptcy. They deserve it.