I think it is worth noting Chrysler is not some ma-and-pop shop. It is another example of “too big to fail”. It is more than just 30,000+ Chrysler workers. It is all the supporting industries to the auto industry at stake. Chrysler going down could send those suppliers out of business and take down GM and Ford with them (which may or may not happen but it is a real fear).
There is also the issue that the US sees the auto industry as a strategic asset. More than just the jobs the US wants an industry capable of supporting our military. Do you want the US reliant on foreign companies for tanks and jeeps and such? Maintaining a substantial manufacturing capacity in the US is critical as a matter of domestic security.
You can still argue of course that the best thing here is to just let Chrysler go under but I think you need to make that argument with the above in mind and account for those effects.
Like it or not there is more here than miscellaneous Company-X making pet rocks going into bankruptcy.
Maybe I should have used the “scare quotes” the first time around. No big.
The thing is, it’s true that there is a noncommercial interest at play, as mentioned in Whack-a-Mole’s last post, but there’s nothing that says that a Chrysler or GM bankruptcy must must inevitably lead to the industrial capacity ceasing to exist, as in the tooling being broken up and sold for scrap metal, the blueprints sold to Geely Auto of China and the plants being converted to loft apartments. As had been mentioned in the lead-in to this current situation, the powers that be in ALL the bailout-candidate sectors should have long been contemplating Plans B through Z that would try to involve a controlled bankruptcy that maximizes the balancing of interests, in case a bailout didn’t work out.
If what you write would be true, then buying distressed debt would be completely risk free, since they get more than they paid for it in BK, and they obviously get more than they paid for it if the company doesn’t go into BK. But if this were true, the price of the debt would rise to reflect it.
In reality, since there’s always some uncertainty about whether or not the company will go BK, the price of the debt will have to be somewhere between the value of the debt under these two scenarios.
I argue a bankruptcy would be by far the best possible outcome for Chrysler. The old management would be swept out, a couple smaller companies formed out of the mess - companies which could start fresh, make new plans, and raise new capital. They wouldn’t be as bound by tradition or practice to legacies but could
still build on the classics.
The idea being tossed around that “if we don’t stop this with a massive bailout, a chain reaction will destroy our ENTIRE INDUSTRYIAL SECTOR!!!111oneone” is both nonsense and bad economics. Yes, it would possibly cause a lot of temporary trouble. It would also let companies step back and fix things. And having healthy auto companies is going to be a damn sight better for industry than having perpetually ailing ones. Do you really think that’s going to help us compete globally - auto companies perpetually on the brink of bankruptcy getting bailed out every few years to save union jobs?
This presumes that the supporting industries can hang in there while Chrysler and such take however long to reorganize, reform and get back up to speed.
My sense of it, from a multitude of things I have read, is there is a time component here. The supporting industries simply cannot wait a year or two for Chrysler to be completely revamped in a new mold and get back up to speed. Mere months would see these supporting aspects failing which would have direct effects on many, many other industrial concerns, not least GM & Ford which are hanging on by their fingernails as is.
Now, does that mean the whole US industrial complex goes in the shitter overnight and can never recover? Probably not. But at what cost? How much shock to the system can we tolerate?
Again, I think these things need to be considered. Chrysler does not work in its own financial vacuum.