Ginsberg Puts the Brakes on the Chrysler Deal

1928 Chrysler ImperialI’ve talked about the issues involving primacy of commercial bond debt and the issues in the Obama administration attempt to wheel-and-deal GM and Chrysler around the standard bankruptcy process. It seems Supreme Court Justice Ruth Ginsberg may have similar concerns. She put a stay on the sale of Chrysler to Fiat. The action puts into question the future of Chrylser in that there will be no other bidders for Chrysler if this deal does not go through by June 15. It also would cause bond holders to re-visit the GM restructure.

This from Scotus Blog.

The action had almost no legal significance, however. The deal remains in legal limbo until Ginsburg, as the Circuit Justice, or the full Court takes some definitive action. There is now no timetable for further action at the Supreme Court, although the terms of the deal allow Chrysler’s new business spouse — Fiat, the Italian automaker — to back out as of next Monday if the deal has not closed. Moreover, the papers filed in the Supreme Court have suggested that Chrysler is losing money at the rate of $100 million a day, pending the sale. That gives the Justices some incentive not to let much time pass before acting.

Among the likely explanations for Ginsburg’s action:

* Ginsburg may have decided to share the decision on what to do with her eight colleagues, and they needed more time to think or talk about it.

* Members of the Court may have decided that they wanted to give some explanation, or perhaps some may have decided to dissent and wanted a chance to prepare a statement saying so. In the meantime, it was her task, as the Circuit Justice, to impose a limited stay.

* Ginsburg or the Court may be waiting to see how the Second Circuit explains its decision to uphold the terms of the sale. The Circuit Court issued no opinion on Friday, indicating that such an explanation would come “in due course,” although the expectation was that one or more opinions would emerge from those judges on Monday.

The wording of Ginsburg’s order — “stayed pending further order” — is the conventional way by which a Justice or the Court carries out an action that is expected to be short in duration, and not controlling — or even hinting at — the ultimate outcome. Any speculation that her order meant the Court was leaning toward a further postponement would be unfounded.

Use by the Obama administration of TARP funds may be at the heart of the issue, although there is no way to determine that from the stay. This from Yahoo news.

Chrysler claims the agreement with Fiat is the best deal it can get for its assets and is critical to the company’s plan to emerge from Chapter 11 bankruptcy protection.

But a trio of Indiana state pension and construction funds, which hold a small part of Chrysler’s debt, have been fighting the sale, claiming that it unfairly favors Chrysler’s unsecured stakeholders ahead of secured debtholders like themselves.

As part of Chrysler’s restructuring plan, the automaker’s secured debtholders will receive $2 billion, or about 29 cents on the dollar, for their combined $6.9 billion in debt. The Indiana funds bought their $42.5 million in debt in July 2008 for 43 cents on the dollar.

The funds also are challenging the constitutionality of the Treasury Department’s use of money from the Troubled Asset Relief Program to supply Chrysler’s bankruptcy protection financing. They say the government did so without congressional authority.

Consumer groups and individuals with product-related lawsuits also are contesting a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the “New Chrysler” partnered with Fiat is created.

Individuals with claims against “Old Chrysler” would have to seek compensation from the parts of the company not being sold to Fiat. But those assets have limited value and it’s doubtful that there will be anything available to pay consumer claims.

The appeals come as Congress intensifies its scrutiny of the Obama administration’s government-led restructuring of Chrysler and General Motors Corp. The Senate Banking Committee said it planned to call Ron Bloom, a senior adviser to the auto task force, and Edward Montgomery, who serves as the Obama administration’s director of recovery for auto communities and workers, to a hearing Wednesday.

Sen. Christopher Dodd, D-Conn., the committee’s chairman, planned to review the use of TARP funds to help the auto companies and look at whether taxpayers will receive a return on their investment.

GM and Chrysler executives faced questions last week from Congress over the elimination of hundreds of dealerships as part of the companies’ reorganizations.

A Deadly Unwind

1950s-carMy dad was a small town Ford dealer (Council Bluffs, IA). Dad was fortunate enough to have a very rich mentor that put him into the dealer development program when I wasn’t even walking and so we moved to what I still believe is the middle of no where and put down roots. I don’t know if you’ve got much experience in a small town, but the local car dealers are actually pretty big businesses for them. My dad headed up blood drives and the United Way. He belonged to the Chamber of Commerce. When Dad was younger he volunteered for everything. As he got older, he wrote a lot of checks. He helped my Mom establish a Victorian house museum that still is world-renown. He always bought tons of tickets to the college world series to hand out to every one who walked in the door. He sponsored little league teams and bought advertising in the local newspapers and TV stations. His 50-100 employees were with dad for as long as I can remember. Not only the mechanics and the office folks stayed with Dad, but also the car salesmen. They were my family too. When dad retired in the 1980s after surviving those horrible energy crisis years, I came to look back on how central the car business is to small town America. Actually, Dad also sold a lot of trucks because we lived in farm country.

I’m thinking more and more about this as well as having a lot of discussions with Dad on the unwinding of the great model-tAmerican car companies. In a way, it feels like the unwinding of small America cities and a way of living. Chrysler and GM are dumping dealers all over the country. Most of the surviving dealerships are not going to look like the way dealerships developed when cars and the car industry were the most American of all business. I’m sure it’s going to be much more efficient and I am certain that each of the US automakers over franchised, but still, there is something about a small town car dealership that is not going to be replaceable. In many towns, it is one of the biggest employers and also a huge source of charitable donations.

It is odd that the first two articles that grabbed me this morning as I drunk my coffee were two contrasting views on the wind down of Chrysler. The first one was all about the finance and the bankruptcy and is on Salon. It’s called “Who is Screwing with the bankruptcy laws”. The second was on the front page of the business section of the NY Times. It goes to directly to the heart of the dealer closings and is entitled “Chrysler Francisees Make Case Against Closure”. Both show exactly how ugly the Chrysler bankruptcy  has become.

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