Punditry: Playing bookie on Chrysler’s reorg plan

Thirty-eight thousand, five hundred jobs hang in the balance as Chrysler seeks approval of its sale to Fiat. If the deal is rejected, billions in pensions and benefits will be lost as well.

Here’s my take on the odds of failure and the plan to avoid it.

First, the details of the deal. The plan presented in court calls for most of Chrysler’s assets to be sold to “New Chrysler,” a wholly owned subsidiary of Fiat, for $2 billion.

Following the sale, employees will take a 55 percent stake in the new automaker, along with an eight percent stake by the US Treasury and two percent by the Canadian government. Fiat will own 20 percent, with with the right to acquire another 31 percent under “certain circumstances,” according to court documents.

At the top, the company’s new owners will each get a say in its board of directors. The US Treasury will appoint three directors to serve on the new company’s nine-person board. The employees and the Canadian government will each appoint a director. Fiat will designate three directors.

The new company will assume most of Chrysler’s liabilities after the renegotiated dealer, creditor and labor contracts are finalized. The assets that aren’t sold to Fiat will be liquidated and the money will go towards paying down Chrysler’ssecured and unsecured debts.

Speaking of which, here come the concessions. Out of the $6.9 billion Chrysler owes its top four secured creditors, the automaker has agreed to pay 28 cents on the dollar. Daimler AG has forgiven another $1.5 billion and Cerberus has forgiven $500 million. The UAW and CAW have agreed to wage reductions, dealers will reduce their margins, and suppliers have agreed to a three-percent price cut on current orders.

So what are the odds of liquidation?

Well, with nearly $7 billion in secured debt being written off, all the major creditors in Chrysler’s bankruptcy case seem to be looking for a speedy resolution (and another series of write-offs) The odds of a majority revolt seem pretty long when you consider that Chrysler’s unsecured creditors are owed roughly $400 million.

It’s these companies — Visteon, Cummins and Denso among them — who will likely get the short of the stick. Until we know what assets Chrysler intends to sell, it’s anyone’s guess how much of a loss these companies will have to eat.

At a time like this, any loss is bound to sting.

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Chrysler to idle most plants during bankruptcy

Automotive News is reporting that Chrysler will shut down the majority of its plants until the automaker re-emerges from Chapter 11 bankruptcy protection. Chrysler employs 26,000 UAW workers and another 10,000 represented by the Canadian Auto Workers.

The move follows a fifty percent reduction in production since the start of the year. Across town, GM has announced plans to shut down most of its plants for nine weeks starting in May to reduce dealer inventories.

[AN]
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A rough road ahead for Chrysler's union with Fiat

Moments ago, President Obama announced that Chrysler will file for bankruptcy today in a New York federal court, then move toward a speedy union with Fiat. But in the rush for a shotgun marriage, there are plenty of hurdles Chrysler has to clear.


The Feds are hoping that in a month or two, Chrysler will re-emerge, tarnished and tattered, under Fiat’s leadership and about $3.6 billion of “debtor-in-possession” financing -- which would keep the doors open while Chrysler sheds its contracts with suppliers, dealers and unions.

In this scenario, dealer contracts will be shed quickly and suppliers may not fare much better. The UAW has already agreed to cuts in their 1997 contract, which was inked when Daimler AG was Chrysler’s new sugar daddy and there was much more wealth to spread around.

But this less-than-apocalyptic scenario of a surgical resurrection can be stopped dead in its tracks if any one stakeholder decides to stall the process in the interest of a better deal.

The federal bankruptcy code only requires that a simple majority of creditors — defined as a group who holds two-thirds of the dollar amount of debt — reach an agreement before they can force settlement terms upon holdouts. Depending on which way the wind blows, Cerberus could find themselves stuck with a bigger bill than they’ve planned -- or at least a lot less room to maneuver.

While today’s news was a long time coming, the repercussions will be felt for some time to come.

Image: Bill Pugliano/Getty


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California lawmakers consider mandatory smog checks for motorcycles

On February 26th, state senator Fran Pavely introduced SB 435. If it passes, all motorcycles built after 2000 will be required, starting in January 2012, to pass a smog test every other year it's operated and whenever a bike is sold within California.

Many fuel-injected motorcycles are already equipped with a catalytic converter, but the bill target owners who remove the converters in favor of a straight pipe and ergo, more horsepower. Nothing in SB435 keeps bike owners from simply swapping out the straight pipe before testing, so it seems doubtful that the expanded smog checks would produce a meaningful reduction in pollution.

The American Motorcyclist Association is urging Californians to oppose the bill, citing that SB 435 is too vague on how bikes will be tested, what the emissions levels will be and the cost of the program to the State.

The bill is already out of committee and is through its first reading, so the time to act is now. You can read the full text of SB 435 here and find a link to your California state senator here.

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Ford, UAW cut deal on retiree health benefits

Ford has hit a home run in negotiations with the UAW, setting a precedent for GM and Chrysler and freeing up the cash it needs to stay out of the government bailout cookie jar.

Under the newly amended contract, Ford will now fund half of its retiree health care benefit fund using common stock instead of cash. The change in funding will free up millions of dollars, which will be put to use for retooling and product planning.

Nearly 60 percent of UAW members voted in favor of the amendments to their existing contract with Ford; It is likely that General Motors and Chrysler will negotiate similar concessions in the coming weeks.

“We are facing an unprecedented loss of sales and revenue at Ford,” said UAW Vice President Bob King, who directs the union’s Ford department. “Our bargaining committee made an extraordinary effort to negotiate changes in a responsible way that will help Ford be competitive, while still protecting our active and retired members."

“The voting results show that our members are prepared to make painful sacrifices in order to be part of the solution to the problems facing Ford and the U.S. auto industry," said King, speaking with Automotive News.

(AN | Photo Credit: AP via Buffalo News)
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Punditry: The top five Fiats that Chrysler needs now

Fiat's recent offer to link up with Chrysler could be silver lining within the Carpocalypse's clouds of doom.

Under the proposed deal, Chrysler gets its cash-starved mitts on Fiat's la bella machinas. And Fiat grabs a minority stake in Chrysler and dibs on Chrysler's distributors and dealerships.

We would get a heaping helping of la dolce automobili, but which cars would head stateside? Presuming all goes well, here's my list of the five Fiats that would save Chrysler's bacon.


#5: Fiat Croma
When Dodge canned the Magnum wagon only to carry on with the overweight and overwrought Nitro SUV, they walked out on a market that has been almost completely neglected since the Camry Wagon was discontinued in 1996.

In the Fiat Croma, Dodge has a laser-focused competitor to the Jetta and Passat wagons. With a five-star crash test rating, leather interior, navigation and a smooth, torquey diesel four-cylinder, the Croma nails all the Jetta's selling points.

As the inevitable surge in gas prices returns, the best days for medium-size wagons lie ahead. The Croma can put Dodge back out at the head of the pack.


#4: Fiat Panda 1.3
Back in 2000, Chrysler hit a grand slam with the PT Cruiser. Decent space and decent pace in a package that looked like it drove right out of the Woodward Dream Cruise.

But as time passed, Chrysler neglected their sales champ, timidly futzing with the car's grille and trim and leaving the rest of the car to age as competitors became faster, more efficient and most importantly, a better car to drive.

The Panda 1.3, with its irrepressible pizzazz, is where the PT should be now. Compact, hip, nimble and thrifty -- all fit the 100-hp Panda 1.3 to a tee. Even with 100 horsepower, the Panda can hustle quite well; Fiat runs the Panda Rally Cup as a starter series for aspiring rally drivers.

More realistically, it can reclaim the market for fuel-thrifty people moving vacated by the equally funky first-gen Scion xB. Horsepower has taken a back seat for a large part of the Gen-Y driving demographic, leaving the Panda with a lot to offer.


#3: Fiat Linea
With lines that rival Audi for Teutonic simplicity, the Linea packs the right set of features and the right engine choices (gas and diesel fours) in a modern sedan with a smooth, quiet ride and a bright, inviting interior.

It's everything the 2007 Chrysler Sebring should have been.


#2: Fiat 500 Abarth Esse Esse
In 1957, the original Fiat Cinquecento was the icon of post-war Italian motoring. With a 13-horsepower straight-twin in the back, it took the work of a young Carlo Abarth to turn the frugal microcar into an ankle-biting demon-slayer on the back roads.

Fast-forward sixty years and the new, front-drive 500 has received heaps of praise -- for its thrift, it's charm and the same nimble nature that made the original so memorable.

Sounds a lot like the Mini Cooper, right?

The 500 Abarth Esse Esse is a special order package for the top of the line 500 1.4, much like the John Cooper Works-tuned Mini Cooper S. With a 160-hp turbo 1.4 four banger, bigger brakes and sport suspension, the Abarth Esse Esse could give drivers a cure for the common Cooper.


#1: Fiat 500C
Fresh off its debut at the Geneva Motor Show, Fiat will launch a drop-top version of the 500 this year as an early 2010 model. It's cuter than the proverbial bug's ear and with the right marketing pitch, it could be the next gotta-have-it cruiser, much like the rag-top Cooper was five years ago.

Rather than shuffle off its mortal coil as a maker of steerage-class sedans, Chrysler has a real chance at enduring glory in this torrid romance with Fiat.

It would be ridiculous to claim that I alone could solve Chrysler's woes, but one thing seem certain: these cars would excel at putting asses in seats. That plays a big role in deciding who survives in the car business.

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