Looking Ahead

LOOKING AHEAD by Wally Dobelis Chrysler leading in car industry recovery drama Recent weeks’ news was incredible, and I could not stop reading the NYTimes, more exciting than a tabloid. There was the portrait of waiflike, Audrey Hepburn look-alike, internist Dr Mazoltuv Borukhova, sentenced to life without parole for hiring her cousin to kill her dentist husband, who had won temporary custody over their daughter. Then, two days of pictures of President Obama shaking hands with Hugo Chavez and listening to Latin dictators lambaste the US, for which he was shamed by the WSJ and by Patrick Buchanan, normally an understanding observer, in Human Events. The defenders of America may be forgetting that Barack Hussein Obama was doing his job, as he did in Turkey and Europe, the job that he may be the only person capable of doing on this Planet Earth – attempting to bring everybody together for economic recovery and peace. There is one set of continuation stories this reader has been pursuing step by step, in guessing the eventual outcome, the collapse of the deeply indebted US automotive industry. The Chrysler repayment negotiations involve the Treasury (which has already loaned them $4B, and will loan a further $6B if the outcome of the negotiations is satisfactory), the company owner (Cerberus Capital Management), the bank lenders, UAW, Canadian CAW and a potential rescuer, Fiat of Italy. This day-to-day drama is slowly reaching its deadline, April 30. It is a day beyond my deadline, so we will have to leave the issue guessing at the outcome. Washington obviously does not want a Chrysler bankruptcy, which would shut off essential Chrysler parts used by all US-, based car manufacturers, and has given $3.5 B to Chrysler and G.M., to support their part makers. As Chrysler itself, the UAW, to whose health care trust Chrysler owes $10.6B, will accept repayment, half in company stock, without further concessions. UAW president Ron Gettelfinger knows that Chrysler will have to contribute $5B cash over next 10 years, a stretch. Gettelfinger has thousands of retirees, their spouses and other voters in the affected communities to back him in objecting to a bankruptcy solution that would decimate the health trust. But other creditors, 45 banks and funds led by JPMorganChase and Citigroup, whom Chrysler owes $6.9B, might want bankruptcy, which puts them at the head of the creditors’ line. The Treasury is asking them for a major concession, to accept 15 cents on the dollar. Their counteroffer is to concede 35 cents, in exchange for 40% of the restructured company’s stock. The sides must reach a decision by April 30, or the company goes to bankruptcy court, with liquidation a prospect. The UAW counts on its 26,000 hourly rated workers, 86,000 retirees and living spouses, and a total Chrysler-based membership of 255,000 – a figure that seems a magnitude too large, though the Times also mentions a G.M. membership of 450,000. Another issue is Chrysler’s potential agreement with Fiat, whereby for 20% interest in the company the Italians will provide small car design and technology but no cash. The idea is to get Chrysler back into the market with small cars offering high gas mileage, valuable in the expectation that fuel costs will go up. More issues involve the fate of the Canadian plants with 8,000 CAW workers, who are not tied to UAW and US elections. The Canadians appear to have agreed to reduce costs. As of four days before the deadline, the UAW board claims to have improved its offer and will put it to membership vote on Wednesday before the Thursday, April 30 deadline. Unofficially, they will accept 55%of the reconstituted company’s stock for $5M of the debt, and expect a repayment of $8.8B by 2023, at 9% annual interest. To this reader, the debt has inexplicably grown to $13B+, but so be it, let this puzzle unravel later. The stock situation is more complex, and if it were not for Daimler, the German owner of Chrysler from 1999 to 2007, at the last minute giving up its remaining 19.9% share in Chrysler, plus $600M to the UAW pension trust, to wash their hands of the deal, there would not be enough shares for all players. As is, the UAW’s 55%, plus 20% for Fiat, 10% to be retained by Treasury, leaves only 15% available to repay the banks. The latest Treasury offer to the banks is to take 22 cents to the dollar, or $1.5B for the $6.9B owed to them, plus stock shares. The threat has been, from the getgo, that the banks, with such a meager offer would opt for bankruptcy court awards giving them more than the Treasury’s cash. Was the government’s reward of $3.5B enough to protect the US car makers from a disruption in parts flow, if bankruptcy were to ensue? Will the UAW risk the uncertainties of the union benefits and healthcare falling to the rehabilitators? With no offer from the 45 lender consortium, and barring a last minute deus ex machina, it appears that a bad conclusion is unavoidable.