During the past 6 months of the recession with talks of bailouts and stimulus, this story may be the most fascinating. I have been following with interest and am fascinated with a President of the United States actively involved in a bankruptcy proceeding.
In May 2007, Cerberus paid an amazing $7.4 billion for an 80% stake in Chrysler. At the time I thought this was a strange investment as Chrysler was struggling and had a huge debt load. They will now lose the entire investment as a result of bankruptcy.
The suppliers to Chrysler are owed an estimated $1.5 billion dollars, and understandably, no longer want to ship materials. This lack of materials has resulted in Chrysler needing to shut down. Now officials from the administration’s auto task force have indicated that there is no reason for suppliers hesitating over shipments or worried about getting paid. This made me laugh because in my experience that is not how it works. If your company was a supplier and owed a lot of money, had not seen full payments in months, and the customer just filed Chapter 11… sure, you would just keep on shipping.
Everyone seems to blame the “investment firms and hedge funds” for holding out for more cash and equity in regards to the government’s proposed settlement. This resulted in Chrysler being forced into Chapter 11 on Friday. But we have laws that protect investors in this country. These folks felt they were getting a bad deal and decided to take their chances in court. This is what the government was hoping to avoid. The judge proceeding over the case will now have the power to reach a settlement.
Most likely the outcome of this will be a scenario where no one is completely happy. Hopefully, for the sake of all the workers for Chrysler and the entire supply chain, a resolution can be worked out quickly.
I would love to hear your thoughts on the bankruptcy of Chrysler and the likelihood of GM also filing for Chapter 11. In my experience, it is almost always better to try and avoid bankruptcy.
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