As many of you are aware Chrysler LLC filed for bankruptcy in New York on Friday, 5/1/09. Per the reports in the news, deals had been worked out with the UAW, Fiat and most of the creditors and bondholders in order avoid the chapter 11 filing. However, a small group of hedge funds held out for a better deal for their investors, and refused to accept the offer from Chrysler. Unable to resolve this issue before a government imposed deadline of 4/30/09, Chrysler had no choice but to file for bankruptcy.
This filing has several ramifications:
1. Chrysler will shutdown all its plants starting Monday, 5/4/09. They will not reopen until the company re-emerges from bankruptcy.
2. The supply base will be significantly impacted. Existing bills will be paid by the federal government. But the suppliers, who are already hurting due to falling sales, will now have to idle their plants until Chryslers plants re-start. The President stated on Friday that he wants a quick bankruptcy. However experts are stating that given the size of Chrysler and its issues a 30-60 day bankruptcy may not be feasible. With this loss of revenue there are likely to be many suppliers forced into bankruptcy. This could have a ripple effect on GM and Ford since they rely on many of the same suppliers for their parts also.
3. Dealers have inventory on hand at this time. The chapter 11 reorganization will force many of the dealerships to close as Chrysler consolidates its operations. Those dealers that are forced out of business will also sell inventory at fire sales prices depressing new car sales for the other OEM's.
4. Fiat will take a 20% stake in the re-organized Chrysler. They will contribute technology and new fuel efficient models to boost Chryslers sales. But this process will take at least 2 -3 years in order to transfer designs from Europe and launch the vehicles in North America.
Bottom line I am skeptical about the chances for Chrysler to emerge from Chapter 11 within 30-60 days. I think the issues that must be resolved have been over simplified. All I see is more pain to the automotive supply base before things start to turn around.
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