It seems like ancient history.
[img]531|left|||no_popup[/img] America’s top auto execs trudged up to Capitol Hill to sing for their supper and explain how they could be such utter failures in a business they used to dominate.
So much has happened since then.
The execs have started flying coach. Thousands of local dealers have been axed. G.M. CEO Rick Waggoner was shown the door and Chrysler filed for bankruptcy protection.
During last winter’s now-infamous Congressional hearings, Chrysler chief Robert Nardelli predicted doom if any of the three carmakers was allowed to slip into bankruptcy. If one should fall, said Nardelli, all would collapse in one collective thud.
A Swift Turnaround
It’s been a month since Chrysler entered the protective arms of the bankruptcy court. So far, the only thing that has happened is that the troubled car company may emerge from Chapter 11 in record time.
The Chrysler bankruptcy proceedings have been moving quickly and smoothly. In fact, the automaker has a hearing Wednesday that could help a new, healthier version of the company emerge from bankruptcy next month.
In its latest incarnation, the carmaker’s strongest brands would be sold to form a new company known as Chrysler Group, owned jointly by Fiat, a United Auto Workers trust fund, the U.S. and Canadian governments.
During this truncated bankruptcy, dozens of secured creditors who usually would be first in line to get paid have complained that the court, under pressure from the White House, has ridden roughshod over their otherwise protected claims.
Feels Rough to Other Creditors
In most bankruptcy proceedings, secured creditors, such as bondholders, can delay the process to ensure that an adequate amount of company assets has been liquidated to pay off their claims. Once their claims have been paid in full, unsecured creditors like the United Auto Workers would be left to carve up the scraps.
Several of Chrysler’s creditors, however, have been grumbling about being hammered by the Obama administration into accepting less than that to which they would legally be entitled in the name of preserving the American automotive industry. Most have kowtowed to the White House demands.
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The Chrysler bankruptcy is a dress rehearsal for the Big Show.
G.M. has been surviving on the fumes of $15.4 billion in federal loans and has until Monday to restructure or face the same fate as Chrysler. The automaker has yet to reach an agreement with bondholders to cut $27 billion in debt as required by the administration, and has said it is unlikely to do so by the deadline.
This means that bankruptcy for G.M. will be unavoidable.
Several legal scholars have expressed alarm over the precedent being set by the Chrysler bankruptcy as it relates to the rights of secured creditors. Despite the undercurrent of patriotism and the press to preserve America’s struggling auto industry, they say the rights of people who loaned Chrysler money have been trampled.
Although there is no longer any genuine debate about the strategic importance of retaining a viable U.S. auto industry, these legal experts are concerned that bankruptcy rules are being dangerously distorted to accommodate an overarching public policy.
While bankruptcy is often a form of rough justice, they worry that in the future other failing companies will look to the Chrysler case and urge that they be given the same ability to select who gets paid and whose rights should be protected.
Long-range legal questions aside, the clock is ticking on G.M. By this time next week the former icon of the auto world will likely file for bankruptcy protection in New York.
If the Chrysler bankruptcy is a snapshot of the future facing General Motors, the faltering auto company may welcome the opportunity for a swift corporate makeover.
Who knows? If everything goes according to the script, come fall, G.M. could be the new darling of the automotive world.
Only in America.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
