Chrysler Down, Not Quite Out

This post first appeared on Minyanville.


Chrysler isn't going down without a fight.

Just days after major media outlets reported a Chapter 11 bankruptcy filing was imminent, the struggling automaker appears to have made headway in negotiations with key labor unions. The breakthroughs offer a glimmer of hope for a company many wrote off months ago.

According to Bloomberg, cost-saving agreements are essential if Chrysler is to merge with Italian-based Fiat and qualify for more government aid. As the Washington-imposed April 30 deadline to cement a deal with Fiat looms, the last-minute negotiations represent Chrysler's last hope to avoid bankruptcy.

The Canadian Auto Workers have already ratified money-saving measures, while the United Auto Workers (UAW) is set to vote on new terms already agreed to by union leaders. The UAW stands to pick up a 20% ownership stake in the new, restructured Chrysler, in exchange for letting the company contribute around $10 billion less to it's health-care trust fund.

The race to save Detroit is reaching a crescendo: If government demands aren't met, bankruptcy nears for not only Chrysler, but General Motors (GM). GM, for its part, isn't finding its offer to swap debt into equity terribly popular with the owners of that debt.

Ford (F) is still hanging on -- despite record losses in the first quarter -- without the egregious government support afforded its floundering competitors.

In defense of its decision to bail out GM and Chrylser last December, the Bush administration told us bankruptcy wasn't a viable option, as such an event would result in millions of job losses. For an economy already hanging on by a thread, the implications were too dire to consider.

Detroit -- despite its fortuitous NFL draft over the weekend -- is on life support. And now, after the changing of the Presidential guard, bankruptcy appears to be not only acceptable, but the Obama administration's preferred outcome. And if we've learned anything in the first 100 days of President Obama's term, it's that where government control of industry is involved, always bet on Washington.



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