25% - that is the probability that Chrysler and GM are going to file bankruptcy. I watched/listened to most of Fritz's (Sweet name) speech. With Chrysler coming to an agreement with the CAW and UAW and Daimler optioning out of their share, it seems like everything will be on track for the Fiat deal to go through unless the bond holders really mess with the situation. GM and the unions will work on getting on the same page soon and strike an agreement.
The challenge for both auto companies will be the bond holders. Now I will not sit here and tell you I know how the bonds work and all. It is not the easiest thing to explain and that is coming from someone who has had some schooling with the subject. Fritz was asked by a reporter if GM was any closer to bankruptcy than they were one month ago. He answered the question the only way he could stating they are closer to bankruptcy. He could not afford to say anything else. If he said they were not than he plays into the bondholders hands. In addition, he cannot rationalize closing more plants and dealerships. This is a classic case of chicken and each team will wait for the other to blink with the the bondholders most likely to do so first.
Neither company can "afford" to go into bankruptcy. Despite the several claims by the government that they can push both auto companies through the process, it simply cannot happen. Much of this has to do with the the number of debtors each company has on their list. It would take for ever to figure out how to handle each of those entities that are owed money. It is one thing when small companies owe another small company money and bankruptcy takes care of it. It is quite another thing when you have one company which employs many people who owes another company that has several employees and numerous suppliers. The trickle effect of bankruptcy is too devastating and economically takes too long.
The other reason that bankruptcy is not an option with auto companies is there are few games in town domestically. If a bank goes out of business, it can get gobbled up by one of tons of other entities. The economic domino of all this taking place is limited since the assets and liabilities are absorbed by that financial entity. With an auto company, the company dissipates and there is everyone in that company as well as the suppliers and even non suppliers who benefited from the business of those employee's wages will en up feeling the effects of the company termination.
If anything it has been a very interesting to watch and will prove to be great for MBA students to take all in future classes.
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