With apologies to Vin Diesel and his Fast and Furious franchise, Chrysler's bankruptcy has been moving faster than any of the cars in the box office hit, and it turns out some debtholders are furious enough to get the Supreme Court involved.
The Indiana Pensioners, a coalition of the Indiana State Police Pension Trust, Indiana State Teachers Retirement Trust, and Indiana Major Moves Construction Fund are pursuing an immediate stay, and are challenging the authority and actions of the U.S. Treasury regarding this bankruptcy. If the Supreme Court overturns the Obama administration's fast-track bankruptcy for Chrysler, expect General Motors' (NYSE: GM ) more complex bankruptcy proceedings to get ugly.
The merger between Chrysler and Fiat, which more than faintly reminds me of JPMorgan Chase's (NYSE: JPM ) taxpayer-backstopped acquisition of Bear Stearns, conveys the desperation on the part of the U.S. Treasury to get a deal done quickly. Recently released emails have shown the tension between the various parties, with one message from a lawyer on the government side going so far as to call Thomas Lauria, the lawyer filing on behalf of the Indiana Pensioners, "a terrorist."
I'm sure that the Chrysler-estimated $100 million-per-day cost of any delay isn't helping cooler heads prevail.
The Federal government sees itself as the protector of the American consumer, stabilizing the fragile economy by keeping automakers going. But what are the limits of that power in accomplishing those goals? The legal filing (which can be read here) addresses that topic on several fronts.
- Can the U.S. government, barring specific congressional approval, reorder private property rights through the bankruptcy system?
- Can TARP funds be used to fund the sale of an automaker, or are they allowed only for financial institutions?
- Is an alleged "unprecedented shift" in valuation methodologies, which essentially diverts value from first lien lenders to unsecured creditors, permissible?
If a deal is not consummated by June 15 and Fiat walks away, the resulting liquidation of Chrysler would lay off almost 40,000 more American workers. The only potential winner here, besides foreign competitors like Toyota (NYSE: TM ) , Honda (NYSE: HMC ) , and Nissan (Nasdaq: NSANY ) , is Ford (NYSE: F ) . The longer Chrysler and GM remain in bankruptcy, the more time Ford has to capture market share. As my Foolish colleague Rich Duprey points out, since Ford isn't shedding burdensome debt and less profitable dealers via Chapter 11, the only advantage it may have against "leaner, meaner" domestic competitors is left over goodwill from not taking taxpayer money.
As a lifelong investor, I hate to see other investors get their rights steamrolled, and I am perpetually leery of government intervention. As a taxpayer, I would like to see an eventual sale of Chrysler to recoup some of the billions we have passively contributed. As an American, I don't want to see a legendary brand fail or tens of thousands more people unemployed, including, ironically, many in the state of Indiana. This is truly a no-win situation.
Whether the pensioners' motion is granted later today or not, at some point the Supreme Court is going to have to address the precedents set by Chrysler and potentially reaffirmed by GM's bankruptcy.
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