We need a deal by April 30 or Chrysler files for bankruptcy. American taxpayers are in tricky five-party negotiations to stop that from happening. It’s lining up with 4 groups on our side and one on the other.
Taxpayers lose big if Chrysler folds. Not only will we have unused capacity on our hands — factories and people — we miss the opportunity to tell a car company what to make and how to make it. Face it!; we have been wanting to shake up Detroit forever. Taxpayers (represented by the Obama Administration and Congress) have lined up the United Autoworkers; the private equity group Cerberus; and Fiat, the Italian car maker of very cute cars.
The bondholders are on the other side; they will get more if Chrysler is sold off in pieces.
There are defenders of the bondholders, to be sure. Some Chrysler bondholders are pension funds for widows and orphans, but most are investment banks — banks who should be quite grateful to taxpayers and on our side. The Chrysler first tier bondholders — e.g. Goldman Sachs and JPMorgan Chase — not only have liens against company assets in the case of bankruptcy, but they will also get a payoff from their bankruptcy insurance. The default insurance (yep, those pesky credit default swaps) will pay more if the company goes into bankruptcy, than the 15 cents on the dollar the government has offered.
After decades of lightly regulated financial engineering and very generous benefits from the tax code — tax policy that favors debt and bonds (interest is a deductible item, but dividends are not) — the Chrysler bondholder has emerged as labor, management, and the Government’s key opponent to staving off bankruptcy.
A United Autoworkers theme song in its strike against Chrysler in 1959 went something like this: “The bosses get pensions when their days are old, there is nothing for you, bud, you are out in the cold.” Those were the good old days: labor versus bosses. Now it seems it’s the lenders against us all. The irony is that, through the bank bailout, we are also the lenders.
If we stop Chrysler’s bankruptcy, we might get stylish Italian–inspired cars built in North America and reduce the role of investment banks in corporate America. Seems like one for the road!
