THE CHRYSLER BANKRUPTCY.

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I haven't written much about the Chrysler bankruptcy because I've not been sure I understand it well enough t have an opinion. But this is about the clearest explanation I've found:

What the federal government is hoping for — in it's happiest-of-happy-thoughts scenarios — is a quick "surgical" bankruptcy of only 30-60 days with Fiat swooping in to pick up the pieces of a tarnished and broken Chrysler, helping them to right the company with an injection of $3.5 billion in DIP (Debtor-In-Possession) financing — a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process that allows the company to operate as it sheds contracts. Then the Feds will give $4 billion in "exit financing." First to go will be legions of dealer contracts that will be shed like so much dead skin off a snake. The UAW has already agreed to certain cuts in their 1997 contract that should take care of their needs.

That relatively rosy scenario can be broken up at any time if one of the key stakeholders — a few bondholders for instance or one of the major Tier One suppliers — decide to stall the process out of a desire to get a better deal than the one being pushed by President Obama's auto task force and Treasury Dept...[U]nder the federal bankruptcy code, companies need only a majority of a creditor class - defined as two-thirds of the dollar amount of that class of debt, and more than 50 percent of the holders of that class - to agree to a reorganization's terms to foist that plan upon holdouts. That standard is lower than the almost complete acceptance usually required for an out-of-court debt restructuring to succeed.

Jon Cohn has further thoughts, detailing the hope that "the partnership with Fiat--and importing of Fiat technology--should allow [Chrysler] to ramp up production of smaller, fuel efficient vehicles. At least some of those cars will, by agreement, be built here in the U.S." The problem is he doesn't seem to think it a very sound theory. "This strategy can work only if the government finds ways to make the purchase of fuel efficient vehicles more attractive," he says.

So we're left in a place where the government has to both subsidize the company and subsidize consumers who buy the company's product. Which makes sense: Would you buy a Chrysler right now? Or even next year? Yeah, me neither. But since the company can't survive without demand, demand will have to be induced. All of which makes you wonder why we're going to such lengths to "save" the American auto industry. For awhile, I thought it was a fairly cheap jobs program. Stimulus for Michigan. But as Robert Reich argues, the companies are not acting as if the point of this is to preserve jobs. GM just slashed 21,000 positions "as a means of assuring the Treasury Department that the company is worthy of more bailout money." The companies, in other words, are acting as if the government is here to bail out the industry as opposed to the industry's workers. And if that's the case, then I probably end up with Tyler Cowen:

[T]here are some very efficient Toyota plants in the United States. That too is part of our domestic automobile industry and those plants employ a large number of American workers.

You might think that Toyota is different because it is a Japanese company rather than an American one. But in fact Toyota is a publicly traded company, as are most of the other major automobile makers. That means any American can, any time he or she wants, buy some Toyota shares and make Toyota more of an “American company” and less of a “Japanese company.”

Have you gone out and bought those shares? Maybe not. Maybe that means you don’t really care about whether Toyota is a Japanese or an American company.

Conversely, imagine that 10 years from now GM is a flourishing corporation. But not in America. Its reputation never really recovered here. Instead, it has found great success producing low-cost cars for emerging markets. China and India are both large buyers. Do you think GM will remember that it is "an American company" with a special moral obligations to American workers. Do you think they will continue to locate their production facilities in high-cost states?

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