April 30, 2009

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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