No More Delaying of the Inevitable

Chrysler is going to file for bankruptcy, at least according to headline reports at CNN, which notes that negotiations with creditors have collapsed.

That's a better situation than the one that the government was hoping to induce, which essentially gave the UAW a larger say in the company affairs than the shareholders, who have more money at risk. It would have also created the unusual situation wherein Ford would have to be negotiating with its competitor - the UAW - when it came time for employee contract negotiations. You see, the Obama Administration was pushing the idea of making the UAW part owners of both GM and Chrysler, which meant that Ford would have been forced to negotiate with its competitors to determine the next union contracts. How exactly is that supposed to make sense?

It only makes sense to the Administration who has to dole out favors to those who have backed it in the past. It's a spoils system, and they're fighting over the spoiled remains of an auto industry decimated by bad business decisions and union inflexibility to adjust to changed circumstances.

There are reports that the Administration is backing a Fiat-Chrysler merger, but that's a bad deal for all. Fiat isn't exactly a healthy company either, having been boosted by the Italian government after its near collapse. It's a matchup of two sick companies, one of which has been on taxpayer funded life support that has delayed the inevitable bankruptcy.

The president’s staff is aiming for Chrysler to file for Chapter 11 protection as early as today to pave the way for Fiat to take a 20 percent stake in the Auburn Hills, Michigan-based automaker, people familiar with the situation said. If Chrysler has to go through bankruptcy, it won’t take long, Obama said.

“It would be a very quick type of bankruptcy, and they could continue operating and emerge on the other side in a much stronger position,” Obama said.

Chrysler’s best assets would be sold to a new entity that would have an ownership structure similar to that envisioned in an out-of-court deal between the U.S. automaker and Turin, Italy-based Fiat, said the people, who declined to be identified because discussions are private.

Administration officials were still resolving outstanding issues and the plan wasn’t finished, one of the people said yesterday.

“I don’t think there should be a stream of subsidies to automakers, but helping them to restructure now,” when sales have collapsed, is “realistic,” Obama said.

Chrysler is expecting the Obama administration to say today whether the company has met all of its requirements to go ahead with the proposed Fiat alliance with Fiat, Chief Executive Officer Robert Nardelli said in a note to employees.

When the Administration says that they are hoping to sell the best assets to Fiat, it means the actual factories and manufacturing base. The bad assets: that's the union pensions and benefits packages, plus the financing arm. Who will hold that bag? The taxpayers.

Count on it.

UPDATE:
The Times reports that UAW stands to gain a say in company operations at automakers. Sorry to break it to the Times, but they've had a say all along. They've been the ones dictating employee costs for generations, and it is their refusal to accept changes in compensation practices over time that has led the automakers to bankruptcy.

What the Times ought to have said is that the UAW now stands to have a much bigger say in the automakers, but it doesn't mean that it will do the automakers any good. It just means that the taxpayers will be left holding the bag when the UAW realizes that it can't justify its own costs.