By Brendan Moore
04.29.2009
Bloomberg News is reporting that Chrysler will file for Chapter 11 bankruptcy tomorrow morning.
The Wall Street Journal is reporting that Chrysler may file tomorrow morning, but, then again, may not, depending on negotiations still going on as I type this at 11:15 PM ET. The business paper states that President Obama has two speeches prepared for tomorrow morning, one speech if Chrysler files bankruptcy tomorrow, and a different one if they don’t.
The Detroit television stations and major news sites in the city are predicting either a Chapter 11 or a “363” sale (bankruptcy court-ordered auction which has certain legal advantages to distressed companies) to Fiat as a whole entity.
Members of the US Treasury department say they are confident that the Fiat-Chrysler alliance can be consummated no matter what happens.
The uncertainty regarding a Chapter 11 filing revolves around Chrysler’s lenders and their refusal so far to accept Treasury terms to settle their loans to Chrysler for some percentage of the amount outstanding. The four largest lenders that hold 70% of Chrysler’s debt, which are all banks, have agreed to Treasury terms, but there are some smaller banks holding out. In addition, almost all of the hedge fund creditors remain unconvinced that Treasury terms are better than what they could realize in bankruptcy court. Therefore, the negotiations continue into the night.
Whatever happens with Chrysler is very likely to happen with GM right afterward.
Nobody is quite sure where that will leave Ford, by far the most healthy of the Detroit Three at this juncture, and the domestic auto company NOT in danger of filing Chapter 11, but apparently that is a problem for another day. However, there is no doubt that a Chapter 11 filing by Chrysler or GM, or both, would put Ford in at least a temporary disadvantage in terms of costs, debt servicing, etc. Of course, the decline in consumer confidence in GM and Chrysler may just about even things out.
It is believed that most consumers will run as fast as they can from a bankrupt auto company, as has happened in the past. But, history may not be the best example in this day and age. Perhaps the debilitating effect on sales may not be as bad as the predictions.
It looks as if we will know more about a potential bankruptcy sometime in the next 12 hours.
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US based consumers may run a million miles from a bankrupt Chrysler (or even GM) but I’d wouldn’t like to bet that too many offshore consumers will. The laws and perceptions of ‘ruptcy differ between many companies. For example, our local distributors hold the warranty onus rather than the parent company. Of course, the offshore distributors biggest drama may well be supply in the first place rather than warranties.