The Chrysler Deal

Looks like Chrysler will wind up in a pre-packaged bankruptcy before becoming a firm jointly owned by Fiat, the United Auto Workers, the United States of America, and Canada. The point of passing through bankruptcy courts is (a) to force a handful of holdout bondholders (mostly hedge funds, it seems) to take a haircut and (b) to be able to put the hammer to Chrysler dealers.

Another element of this is that Chrysler’s financial arm will not be bailed out. Instead, GMAC—GM’s financing arm, now restructured as an independent bank holding company—will take over.

Given the status quo as of two weeks ago, I think this is a good resolution. But I still wish that back in late November when this issue first come up that we’d moved directly to the government putting up money to do debtor-in-possession financing and but the company through the bankruptcy courts. Fiat could have bought Chrysler’s productive assets in a bankruptcy process, and instead of spending billions keeping Chrysler operating for a few additional months more funds could have been made available for direct relief. I suppose that, politically, it may have been necessary to go through the motions of showing that it wasn’t possible to get all the concessions needed short of bankruptcy.

Meanwhile, how much precedent is there for state-owned enterprises to be jointly owned by two different countries?