Chrysler Dissident Investors Cave; Political, Legal Wounds Linger
By Michelle Krebs May 11, 2009By Bill Visnic
Industry analysts. Political commentators. Legal scholars (and those who think they are). Journalists.
Everyone's got an opinion -- plenty of it critical -- about how the Chrysler Chapter 11 bankruptcy has gone down and is proceeding. And about whether Fiat's resulting takeover of Chrysler can really work.
Most criticism of "the deal" focuses on whether the government, acting as the agent of compromise and haste, outstepped legal and ethical boundaries in abrogating the property rights of Chrysler's secured creditors and later "strong arming" those creditors who rejected a government offer of about one-third the value of their holdings.
Whether the bullying was real or perceived no longer matters. The remaining secured-lender holdouts, their numbers dwindling by the day, announced late last week they are withdrawing their objection of the bankruptcy procedure laid out to allow the sale of Chrysler's assets to a new, reconfigured Chrysler run by Fiat.
The Obama administration and its Auto Industry Task Force deny the thug tactics alleged by the attorney for the band of investors that for a week was a burr under the saddle of an expedited Chrysler trip through bankruptcy court.
Just a day before dropping their legally principled dispute, George Schultze of Schultze Asset Management -- one of the dissident investors -- told the Washington Post that "undue political pressure" from the Obama administration was responsible for several of the group dropping their objection to the bankruptcy's proceedings.
Schultze told the paper, "We are staying in this fight until we get justice," and vowed to raise appeals. At that time the group, which separated itself from the majority of Chrysler secured lenders who accepted the government's reduced payoff for the company's debt, has dwindled in number from 20 to just five. The next day, Stairway Capital Management and Oppenheimer Funds Inc., two of the group's more prominent members, pulled out -- and the uprising-for-justice was over.
Pressure, Pressure Everywhere
As troubling as was the allegation from Tom Lauria, the group's attorney, that Task Force boss Steve Rattner told one dissident investor he would have the White House press corps trash the investment bank's reputation if it didn't play ball (the charge was denied by many supposedly involved), equally disquieting was a report in the Financial Times that large banks "operated to advance the government's agenda" by cajoling the dissident investors to cave.
This angle highlights another complaint of the investor group: that 70 percent of Chrysler's senior secured debt is held by four major banks -- JP Morgan, Citigroup, Morgan Stanley and Goldman Sachs -- that all accepted billions in government Troubled Asset Relief Program bailout loans. And those banks, now deeply indebted to the government, carried the water in pressing for the hasty and possibly unconstitutional dispatch of the Chrysler bankruptcy.
A prominent bankruptcy attorney told AutoObserver last week that the government's short-circuiting of bankruptcy-law conventions and precedents is "dangerous," and critics from many sectors agree. Many believe the country's executive branch is becoming too comfortable with using whatever means necessary to advance the socio-financial agenda it believes is the best route to halting the nation's economic turmoil.
Even in conceding its legal challenge, Lauria perpetuated the group's main theme, that governmental Fiat (pun intended) was trumping rule of law:
"After a great deal of soul-searching and quite frankly agony, [the dissident investor group] concluded they just don't have critical mass to withstand the enormous pressure and machinery of the U.S. government," Lauria was reported as saying.
But Pressure to What End?
"According to the law, this plan should not be approved," said Lynn LoPucki, a University of California law professor, to Bloomberg News' Ann Woolner.
Skepticism of the legalities of the Chrysler bankruptcy process will soon be forgotten. But remaining is the distinct possibility the government's controversial wrangling is to advance a cause already lost. After all, the endgame is to rush Chrysler through bankruptcy so it can be transferred to Fiat. The joining of the two is supposed to save Chrysler and strengthen Fiat globally.
Few knowledgeable voices believe the alliance will work. Particularly now that Fiat also is pursuing General Motors Corp.'s Adam Opel AG and the rest of GM's European operations in the hope of forming a new automaking conglomerate that would vie with the Volkswagen Group to be the world's second-largest automaker.
"Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen -- or a less-promising one," wrote Holman W. Jenkins Jr. for the Wall Street Journal.
Jenkins points out a difficult-to-overlook supposition of the proposal: Fiat's small cars and fuel-efficiency technology -- expected to deliver Chrysler to solvency Valhalla -- almost certainly will not do so.
"Mr. Marchionne has kept his skin out of the game for a reason," Jenkins continued. "Don't expect him to reach for Fiat's modest checkbook until Team Obama can explain exactly how Chrysler is supposed to make money building the 'green cars' Mr. Obama wants it to build. But you already know the answer: You, the taxpayer, have not finished chipping in to keep Fiat-Chrysler alive."
Analysts the world over have presented a dim view of the prospects for the Fiat-Chrysler alliance, with many suggesting Fiat and its visionary but dogmatic CEO Sergio Marchionne don't have the financial or product-development chops to pull it off. The fact Fiat's quality reputation (epitomized by the well-known yukker that Fiat stands for "Fix It Again, Tony") remains dismal throughout most of Europe is unlikely to be ignored by U.S. consumers, if for no other reason than it seeks to join with another quality-challenged entity in Chrysler.
The Fiat-Opel proposal faces numerous political obstacles, but ultimately may make more sense than the tie-up with Chrysler. The Obama administration risks much to see the Chrysler-Fiat deal happens, but in the end it likely is little more than a delaying action that is believed preferable to Chrysler's immediate collapse.
Emerging from bankruptcy and joining with Fiat only forestalls the pain and extends the amortization schedule on the billions taxpayers have sunk into keeping Chrysler on life support.
The Obama administration's legal cowboying has been wasted on a bogus cause -- but the CEO-in-chief's auto-industry entourage probably already knew that.
Chrysler is too distressed to fix -- particularly by Tony.
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