Chrysler and The Bankruptcy Filing

The inevitable has finally come to stay. The first of the three big American automakers have filed for bankruptcy with Chrysler turning tricks. So just what does it mean for the industry as a whole?

The day of the big three automakers complacency is long gone. The market has spoken, and loudly. The companies have long faced an inevitable doom, but has been damaged beyond the understanding of the big decline. That said, the bankruptcy filing by Chrysler is in many ways a positive development rather than a negative.

Chrysler has correctly used the threat of bankruptcy as a means to get his debtors negotiating table. This was partly the motivation of Chrysler, but primarily motivated by the Task Force of President Obama. Creditors had never thought the President would risk the political fallout of a bankruptcy filing. They were wrong, and now faces the prospect that their positions are greatly reduced or even wiped out completely.

Chrysler bankruptcy filing is also a big wakeup call for General Motors. More specifically, the bondholders of General Motors is not feeling too good today. Holding well in excess of 20 billion dollars in GM bonds, for they have based their refusal to change their attitudes towards the belief that President Obama would not let GM go bankrupt. This position, of course, will be reviewed today.

So what will become of Chrysler now that it has saved? The answer is interesting because this is a unique situation. Many companies will position themselves before the bankruptcy filing, but Chrysler has done a fantastic job. Not only has it placed creditors in a bad position, but it has signed an agreement with Italian giant Fiat to partner when it comes out of the case.

Unique to Chrysler is the role government takes in bankruptcy. The Government will provide 8 billion dollars in financing through bankruptcy and after the emergence of the same. The government will also implement an equity and sits on the board of the company. This will essentially make Chrysler a partially government run business. This is unprecedented, and no one is particularly sure how the experiment will work out.

Chrysler bankruptcy was inevitable. General Motors is up next. The big three are in for some major changes and can be viewed on the changes for the better.