White House Driving Chrysler to the Junk Yard
Let’s review the fantastic Chrysler re-structuring deal pushed through by White House finance thugs this past week.
Chrysler Ownership – Whom Do We Trust?
The UAW will own 55% of Chrysler. Fiat will own 35%. The remaining 10% of the company will be owned by taxpayers and bondholders.
Please – where do I sign up to buy the first new UFylser designed and built by that mess?
Do we think that the UAW will divert company cash into developing and implementing new vehicle technologies? Are you kidding? Job one for the UAW will be “preservation of union benefits.” Job two for the UAW will be “increase union benefits.” Job three will be …. uh – well – the UAW will have to get back to us on if there will be a job three.
Perhaps Fiat will carry the ball on new car design and quality. To ease our concerns in that area, let’s summarize Fiat’s historical success in the U.S. car market:
Oh, sure, Fiat sold cars here until it pulled out in 1987. Those cars were junk. They made the Chevy Vega (one of the worst U.S. cars ever built) seem rust-free and reliable by comparison. Mr. ToughMoneyLove is ashamed to admit that I actually owned a Chevy Vega. (Actually, it owned me.)
According to recent surveys of European car owners, the Fiat reputation for reliability quality is still poor. Italians don’t even like Fiat.
Re-Branding in the U.S. Market
The Chrysler/Fiat business model apparently is that existing Fiat small car designs will be built and sold in the U.S. using Chrysler’s excess manufacturing capacity. That’s been tried before on many occasions, mostly with spectacular failures. For example:
Pontiac Vibe (which was actually a Toyota Matrix)
Chevy Nova and Geo Prizm (Toyota Corolla)
Mitsubishi Raider pickup ( Dodge Dakota)
Suzuki Equator ( Nissan Frontier
Geo Metro ( Suzuki Swift)
Eagle Talon (Mitsubishi Eclipse)
Dodge Raider (Mitsubishi Montero)
Geo Tracker ( Suzuki Sidekick)
Ford Festiva (Kia Pride)
Ford Aspire ( Kia Avella)
Geo Storm and Geo Spectrum (Isuzu Impulse)
Anyone encouraged by that list?
Well, maybe Tim Geithner at the U.S. Treasury will stand up for taxpayers and make sure that Chrysler builds and sells cars that consumers will want. Except that Geithner is kind of busy playing catch-up learning about tax laws and trivial stuff like that.
About the White House Finance Thugs
Speaking of junk and Fiat, Standard & Poor’s recently financially downgraded Fiat to junk-bond status. Thank you White House for such a clever strategy – moving Chrysler into the welcoming arms of both junk cars and junk bonds.
Yes, I did refer to the White House arm-twisters as “finance thugs.” That opinion is based on reports from bondholders at the Chrysler restructuring negotiating table. Apparently, some bondholders (e.g., hedge funds that managed pension assets) were willing to take a 50% haircut on what they were owed, in exchange for a larger ownership stake in the surviving entity. (Keep in mind that by contract, bondholders are generally first in line in any bankruptcy.)
Apparently, the White House didn’t like that attitude. So it threatened to bring the full-force of a Presidential PR attack on those bondholders so as to ruin their reputation. (Source: WJR radio interview) Some bondholders capitulated (those that need TARP funds) and the favored UAW maintained its majority shareholder position.
Everyone who plans on buying a UFylser, please tell us in a comment.
Photo credit: Seth W.