Obama Mitts Off Chrysler Chapter 11 Bankruptcy

Obama Mitts Off Chrysler Chapter 11 Bankruptcy

April 30, 2009

Obama Mitts Off Chrysler Chapter 11 Bankruptcy

CEI Comments on Obama Takeover of Chrysler

Washington, D.C., April 30, 2009—In the next 48 hours, Chrysler is expected to file for bankruptcy because, according to press reports, a significant minority of its creditors object to the Obama administration's planned takeover in which the government and unions would own a majority stake. The Obama administration hopes to persuade the court to ratify and rubber-stamp its plan.

John Berlau, director of CEI's Center for Investors and Entrepreneurs, explains why the bankruptcy courts should exercise independent judgment instead, as they do in any typical bankruptcy case.

Statement by John Berlau on Chrysler's expected filing of Chapter 11 bankruptcy.

The expected Chapter 11 bankruptcy filing of Chrysler LLC is an action that probably should have happened months ago. It could have spared all involved the chaos of the "political bankruptcy" we have seen unfold. The process of a judicial bankruptcy will bring a needed check to the Obama administration reorganization plan that heavily favors unions, at the expense of bond and debt holders.

The hedge funds that refused to be strong-armed into the Obama plan should not be blamed for asserting the interests of the investors they represent; investors that could include pension funds that serve middle-class families. The bankruptcy court should be allowed to be impartial and not be pressured to automatically take the plan offered by the Obama team. It should weigh the interests of all involved, using Chapter 11 precedent, and decide accordingly what each party is entitled to, as bankruptcy courts normally do.

The merger of Chrysler and Fiat the government has pushed is pure "industrial policy" of the type that led to stagnation in Japan and other nations where it has been practice. It may not be the most viable choice for Chrysler to specialize in smaller cars. Rather, a merger combination between Chrysler and General Motors with a concentration on larger vehicles such as SUVs may be the best option. This alliance had been discussed for years but was shelved because of concerns it might run afoul of antitrust laws. The Obama administration should lift any antitrust barriers to effective reorganization -- and suspend planned increases in the Corporate Average Fuel Economy standards that would be detrimental to Chrysler and other carmakers -- but otherwise stay neutral as to the form the reorganization takes.

The relatively smooth process of recent large Chapter 11 bankruptcies, such as that of mall owner General Growth Properties, shows that far from being "disorderly," judicial bankruptcies are far more orderly than taxpayer bailouts in unwinding and reorganizing insolvent companies. The judicial bankruptcy process should be given a chance to work in the case of Chrysler and any other companies that follow suit.

>See also, John Berlau in the American Spectator comparing the bankruptcy of General Growth Properties to that of the automakers.