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Faltering Talks Tip Chrysler Toward Bankruptcy

If Chrysler lands in bankruptcy court, proceedings could help the company cut the costs of closing some of its 3,200 dealerships.
If Chrysler lands in bankruptcy court, proceedings could help the company cut the costs of closing some of its 3,200 dealerships. (By Jonathan Newton -- The Washington Post)
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"These rogue hedge funds are not coming in line because they feel like the government is attempting a cramdown, which is essentially a take it or leave it deal," Stone said.

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Because those hedge funds continued to resist efforts to make such a deal, a bankruptcy filing appears to be inevitable.

Bankruptcy enables a company to shed some debt and other obligations, and a court could force the recalcitrant hedge funds to accept the deal that the large banks have.

The court proceedings could also help the company cut the costs of closing some of its 3,200 Chrysler, Jeep and Dodge dealerships. Because some state franchise laws prevent automakers from forcing dealers to close, it can be expensive to buy them out. In bankruptcy, however, a judge could eliminate dealerships.

Fearing this prospect, the National Automobile Dealers Association has hired a law firm to protect Chrysler dealers in case of bankruptcy.

Despite the advantages, the damage to Chrysler's name and the uncertainty about the duration and outcome of the court proceedings had government officials planning to work late in last-ditch attempts to avert that possibility.

Whatever the outcome, Obama told reporters last night that he is hopeful that Chrysler can once again become viable.

"I'm feeling more optimistic than I was about that getting done," he said.

Staff writer Steven Mufson contributed to this report.


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