Obama Vows Swift Overhaul As Chrysler Enters Bankruptcy
Friday, May 1, 2009
Chrysler, the nation's third-largest automaker, filed for bankruptcy protection yesterday, with President Obama promising that court relief would give the company a "new lease on life."
The administration's efforts to avert a bankruptcy filing were frustrated by some hedge funds, which Obama referred to as "a small group of speculators," that rejected the government's final offer to settle their claims against Chrysler out of court.
Now largely under government control, Chrysler will seek in court to strip itself of its overwhelming debts. Then, according to the administration plan, the company will get roughly $10 billion in new government aid and be merged with Italian automaker Fiat.
It is an ambitious corporate rehab project for any management team: Cerberus, the secretive private-equity firm, failed in recent years to revive the company after its ill-fated marriage to Germany's Daimler. The Obama administration's attempt similarly runs a number of risks.
While Obama promised a "quick" and "efficient" bankruptcy, and administration officials said they hoped it could be done in 30 to 60 days, many in the field warned that it could take much longer because of the size and complexity of the case. Each passing day could weaken the company's prospects if customers and suppliers shun the brand. Chrysler announced yesterday that it is stopping production across the country for 30 to 60 days to reduce inventories. Because the United Auto Workers renegotiated its contract, cutting supplemental unemployment benefits, workers affected by the shutdown will receive a portion of their regular pay.
Moreover, there is no guarantee that a slimmed-down, Fiat-managed company would fare significantly better than Chrysler has in the past against foreign competition such as Toyota and Honda, which essentially dethroned the American automakers years ago.
"For too long, Chrysler moved too slowly to adapt to the future, designing and building cars that were less popular, less reliable, and less fuel efficient than foreign competitors," Obama said. "That's part of what has brought us to a point where they sought taxpayer assistance."
The administration's efforts on behalf of Chrysler foreshadow what may be a vastly larger effort later this month, when it is scheduled to complete the makeover of American corporate icon General Motors.
Like Chrysler, GM has been weakened by massive debt and propelled by the economic crisis to the brink of bankruptcy.
The dual rescues within the auto industry have placed Obama in the odd position of salesman-in-chief.
"If you are considering buying a car, I hope it will be an American car," Obama told a television audience yesterday.
He also noted, as showroom salesmen now do, that the government has guaranteed the warranties of both companies, so consumers can get full coverage even if one of them goes bust.