The hottest action in Detroit these days is in a bankruptcy courtroom.
As Chrysler appears ready to emerge quickly from its stay under bankruptcy court protection, General Motors (GM) is getting ready to file for bankruptcy court protection, as the government and the unions prepare to take ownership of both companies.
It’s like the Marx Brothers are running Detroit. And Washington for that matter.
Even as GM was working out a deal with its unions that would allow the government to take a 70% stake in the company (did we really just write that? Good grief,) GM’s bondholders rejected a debt-swap offer that would have given them a piddling 10% of the company. Without that offer, and probably even with it, GM will undoubtedly file for bankruptcy court protection, if not before the government-imposed deadline of June 1 to come up with a viable restructuring plan, then soon after.
Meanwhile, approval of the sale of Chrysler will likely come at a Manhattan bankruptcy court hearing today, now that a judge has dismissed a challenge by Indiana pension funds over the deal’s legality.
Reports say Chrysler is expected to emerge soon from Chapter 11, which it’s been operating under since April 30. The exit could come as soon as next week, CNBC quotes a source familiar with talks between the company and the US administration’s automotive task force as saying.
“We’re pretty close to the end with Chrysler,” the source said. Once out, Chrysler will be run by Italy’s Fiat (F.MI), which will have a 20% stake.
When all the dust settles, if Detroit even still has three car companies, two will have gone through bankruptcy court protection. One will be majority owned by its union, with the government the next biggest stakeholder, followed by an Italian car company that put up no money. The other will be 70% owned by the government, with its union the next biggest stakeholder.
And a bedrock foundation of the American Dream will have been laid low. Tens of billions of government dollars will have been throw at these two companies, tens of thousands of employees will have lost their jobs, including one CEO, and just forget about the tens of billions in private profits that have already been squandered.
Honestly, the Marx Brothers could not have done a worse job. And at least the show would have been entertaining.
“Hello, I must be going. I cannot stay, I came to say, I’m going…”
(Jeff Bennett contributed to this report.)