Chrysler Restructuring Moving Quickly
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Chrysler is moving closer to survival. Its bankruptcy serves as a test of whether a troubled automaker can stay in business. And it's starting to look like Chrysler can, which does not mean that all of Chrysler's creditors think they're getting a fair deal. NPR's Frank Langfitt reports.
FRANK LANGFITT: When Chrysler CEO Robert Nardelli�went to Capitol Hill last fall, he predicted a bankruptcy would be devastating.
Mr. ROBERT NARDELLI�(Chief Executive Officer, Chrysler): We believe that retail sales will plummet dramatically. Given our common supplier base, the bankruptcy of any one automotive manufacturer, we believe, threatens the viability of all automakers.
LANGFITT: And he concluded with this warning.
Mr. NARDELLI: Finally, we just can't be confident that we'll be able to successfully emerge from bankruptcy.
LANGFITT: Well, Chrysler's been in bankruptcy now for nearly a month and so far none of those things has happened. Even better, on Wednesday a judge in New York will consider whether the carmaker's strongest brands should be sold to create a new company called Chrysler Group. The new firm would be owned by Fiat, a union trust fund, and the U.S. and Canadian governments. And it could be out of bankruptcy in several weeks.
Professor EDWARD ALTMAN (Finance, Stern School of Business): Well, this is amazing.
LANGFITT: That's Edward Altman. He's a finance professor at New York University's Stern School of Business. Altman says a new Chrysler could exit court at near record speed.
Prof. ALTMAN: My guess is this is probably, if not the fastest, one of the fastest.
LANGFITT: The case is moving quickly because the U.S. government fears a long bankruptcy could destroy Chrysler sales. So the White House is pressing Chrysler's creditors who lent the company money to cut deals fast. But Altman says the government is steamrolling creditors into accepting big losses.
Prof. ALTMAN: Anybody who normally would slow down the process through appeals has been beaten down pretty good.
LANGFITT: For instance, when some creditors complained they were getting short changed, President Obama suggested they were being unpatriotic. They quickly rolled over. Those lenders are what's called secured creditors and that means that legally they're first in line to get paid in bankruptcy. But they say the United Auto Workers, which is unsecured and should be behind them, is getting a much better deal.
Richard Mourdock is state treasurer of Indiana. He oversees police and teacher pension funds that lend Chrysler money. Mourdock says those funds now stand to lose millions of dollars, while an autoworker trust fund will end up owning most of a new Chrysler company.
Mr. RICHARD MOURDOCK (State Treasurer, Indiana): It's wrong, that people can just suddenly, arbitrarily change 100 years of American legal practice to say secured creditor doesn't mean secured creditor.
Professor JAY WESTBROOK (Bankruptcy law, University of Texas): When the bankruptcy process is being used to try to save a business, the courts and the parties have to accept a kind of rough justice.
LANGFITT: Jay Westbrook teaches bankruptcy law at the University of Texas in Austin. He says sometimes the need for speed doesn't leave time to deal with every complaint from every creditor.
Prof. WESTBROOK: The classic example we always use in bankruptcy is that the debtor has this shipload of raw fish, right? And we've got to move quickly before the fish spoil or they'll be no value for anybody.
LANGFITT: Westbrook says in the case of Chrysler it's not about saving fish but protecting the economy.
Prof. WESTBROOK: I think a lot of it has to do with jobs in a very serious economic decline. But beyond that, the existence of a real full-blooded automobile industry I think is very important to the industrial future of America.
LANGFITT: But Lynn LoPucki, who teaches bankruptcy law at UCLA, says the Chrysler case sets a worrisome precedent. One he expects will influence General Motors, which could file for bankruptcy at the end of May.
Professor LYNN LOPUCKI (Law, University of California Los Angeles): If the Chrysler sale is approved, General Motors will file in New York and General Motors will undoubtedly win approval of its sale as well. And from then on virtually every big company that files bankruptcy is going to want to have the same thing that Chrysler and GM had, a bankruptcy that's over in 30 to 60 days.
LANGFITT: But even if Chrysler emerges from court next month, its survival is not certain. The company still has weaknesses, including a glaring lack of competitive small cars. It won't be able to produce them for at least another 18 months. And in the car business, that's a very long time.
Frank Langfitt, NPR News, Washington.
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