Free Markets, Free People

Chrysler


Closing Dealerships Via Barack-Foolery?

I watched this story percolate throughout the day, wondering if there was anything of substance to it. Even now I’m not entirely sure how much is pure speculation and how much can be decisively proven. If any of it turns out to be true, however, then the repercussions could prove politically fatal. Doug Ross has the scoop:

A tipster alerted me to an interesting assertion. A cursory review by that person showed that many of the Chrysler dealers on the closing list were heavy Republican donors.

To quickly review the situation, I took all dealer owners whose names appeared more than once in the list. And, of those who contributed to political campaigns, every single one had donated almost exclusively to GOP candidates. While this isn’t an exhaustive review, it does have some ominous implications if it can be verified.

However, I also found additional research online at Scribd (author unknown), which also appears to point to a highly partisan decision-making process.

[...]

I have thus far found only a single Obama donor (and a minor one at that: $200 from Jeffrey Hunter of Waco, Texas) on the closing list.

Chrysler claimed that its formula for determining whether a dealership should close or not included “sales volume, customer service scores, local market share and average household income in the immediate area.”

In fact, there may have been other criteria involved: politics may have played a part. If this data can be validated, it would appear to be further proof that the Obama administration is willing to step over any line to advance its agenda.

Doug notes some anecdotal evidence to back up his theory, and reading through the various personal accounts from dealerships who claim to be successful, and yet who are being shut down, lends some credibility to the idea. As does the fact that the closing list is reportedly populated almost exclusively with Republican donors and/or those who gave money to Obama’s Democratic rivals. But the real test is in a comparison of the lists of dealerships staying open and those that are closing against a campaign donor database (which I haven’t done, but feel free to scrutinize them for yourself).

Nevertheless, the following bit of research from Red State strikes an ominous chord:

Eric Dondero recognizes some of the dealers’ names on the hit list:

“Vern Buchanan is a Republican Congressman from the Tampa Bay area. Robert Archer is the son of former Republican Congressman Bill Archer. John Culberson, a libertarian-leaning Conservative, is now the Congressman for that West Houston District. He was heavily supported in his election efforts by the Archers Family.”

“Additionally, James Crowley, owner of a Chrysler Dealership in Escondido, California is on the list to be closed. Crowley is a big backer of libertarian-leaning Republican Cong. John Campbell of Orange County.”

The list is heavy with influential Republicans and libertarians. Another name on the list is Ray Huffines, who owns a large dealerhsip in the Metro-Dallas/Ft. Worth area. The Huffines family have been major contributors to Rep. Ron Paul (R-TX) over the years.

It’s hard to know what to make of all this, but at first blush it certainly looks like the decisions to close dealerships may have been influenced by the political affiliations of the dealers. Under regular circumstances that would elicit a big shrug, but when Chrysler’s decisions are basically being made for them, well, that’s a whole ‘nother kettle of fish (via Reliapundit):

A lawyer for Chrysler dealers facing closure as part of the automaker’s bankruptcy reorganization said on Tuesday he believes Chrysler executives do not support a plan to eliminate a quarter of its retail outlets.

Lawyer Leonard Bellavia, of Bellavia Gentile & Associates, who represents some of the terminated dealers, said he deposed Chrysler President Jim Press on Tuesday and came away with the impression that Press did not support the plan.

“It became clear to us that Chrysler does not see the wisdom of terminating 25 percent of its dealers,” Bellavia said. “It really wasn’t Chrysler’s decision. They are under enormous pressure from the President’s automotive task force.”

Given the other sorts of thuggery that have been alleged in these Chrysler proceedings, this should come as no shock. But the fact that these closings will have to be approved by the creditors in the bankruptcy case lends a certain bit of intrigue to this case and raises a lot questions in my mind.

Assuming that the closings are motivated by political payback from Obama, how will that plan affect the stakeholders in the new company? If there really are profitable dealerships being shutdown just because they gave money to the wrong candidates, then it stands to reason that the remaining dealers will be something less than the cream of the crop, and therefore the new Chrysler will have a less than optimal distribution chain for its products. It’s not entirely clear why shutting down dealerships helps Chrysler anyway, since they are essentially the real customers of the carmaker, but it seems to me that those who plan to profit from the new venture would have something to say about the plan in the bankruptcy case. Presumably, they will want to protect their investment by challenging any plan for closings that does not maximize their return. If and when they do, it could get very interesting for Obama (again, assuming that any of this is true).

It should be noted that until some further confirmation surfaces, this story should be treated with a healthy dose of skepticism. Indeed, if it weren’t for the rather dictatorial way the Obama administration has dealt with the entire automaker bailout fiasco, these allegations of political payback would ring pretty hollow. Yet, considering the past bullying, the story definitely merits further consideration, so keep your eyes and ears open for more.


Podcast for 24 May 09

In this podcast, Bruce and Dale discuss discuss the president’s announcement of legal indefinite detention, and the economy.

The direct link to the podcast can be found here.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2007, they can be accessed through the RSS Archive Feed.


GM To Be “Chryslered”

I hesitate to call it bankruptcy when it is really a sham of a bankruptcy. In fact, it is the same sham that Chrysler has undergone:

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it. Yesterday, the union announced that it reached an agreement with GM that will reduce the company’s labor costs.

Still unknown is what part the Canadian government might play in the ongoing GM restructuring.

GM operates several plants north of the border. The Canadians agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the nine board seats.

Sound familiar? So government will now have 5 of 9 board seats, the union has a huge share of the company and bondholders?

The chief obstacle to an out-of-court settlement for GM remains: There has been no agreement between the company and the investors who hold $27 billion worth of GM bonds.

Under orders from the Obama administration, GM has offered to give the bondholders a 10 percent equity stake in the restructured company in exchange for giving up their bonds.

That’s the offer made and, as you might imagine, bondholders are resisting this. That, of course, gives the administration the same excuse it used to take Chrysler to bankruptcy under its apparently newly written rules which gave government the lion’s share of ownership.

As you might imagine, not everyone is happy. And since this “bankruptcy” is now being politically managed, more politicians are getting into the act.

For instance, on the subject of cutting Chrysler dealerships:

There are also challenges outside court. Chrysler has moved to close 789 dealerships on June 9. But Sen. Kay Bailey Hutchison (R-Tex.) has introduced legislation that would withhold federal funding if the automaker does not give dealers an extra 60 days to close down operations and sell remaining inventory. Her amendment has won the backing of a number of other senators.

Should such legislation pass, you can expect something similar with GM.

And some Democrats aren’t particularly happy either:

Judiciary Committee chairman Rep. John Conyers Jr. (D-Mich.) said he hopes to meet with White House officials today to discuss changing Chrysler’s bankruptcy plan and GM’s future. Conyers did not outline what he wanted, but a nine-person panel he assembled for a hearing yesterday offered a hint. Liberal consumer advocate Ralph Nader, a conservative Heritage Foundation analyst and minority auto dealers all criticized the automakers’ restructuring.

Conyers and other committee members attacked the administration for abusing bankruptcy laws, unfairly eliminating dealerships and jeopardizing consumer safety.

Yup, looks like the political bureaucracy is kicking into high-gear and you can just imagine how well this is going to work out, can’t you? That and the fact that contracts will never be viewed in the same light again have to make you fear for our economic future.


Comment Of The Day

It’s rare that I quit reading through a comment section because I happen upon what’s surely the best comment. However, this comment to Capt. Ed’s post about the Obama administration’s thuggish tactics in the Chrysler negotiations sums everything up perfectly:
obama-scold-finger1

“I did not have knowledgeable relations with it, that Constitution.”

Heh.


Reinventing The Flat Tire – Chrysler Set To Try A Variation Of The British Leyland Model

There’s some interesting stuff out there to read about the Chrysler bankruptcy, like people asking “why wasn’t this done in the beginning”?

Simple answer – in the beginning there was no way to secure the UAW a majority stake in the company. Now, as Felix Salmon points out, that’s been accomplished:

The broad outlines of a deal are already clear: Fiat will take a 35% stake in the company and manage it; the UAW will have a 55% stake; and all the government’s TARP funds will be converted into a 10% stake. Present-day creditors do not get equity but rather get cash; the sticking point is exactly how much cash they will get. And of course present-day shareholders — Cerberus and Daimler — are wiped out, and top management will be replaced.

Of course the reason Chrysler is headed into bankruptcy is because all of its bondholders weren’t satisfied with the deal offered through taxpayers money. As you might imagine, Think Progress has the “progressive” spin on the situation:

As Bloomberg reported, “Obama’s team had first offered secured lenders $2 billion for their $6.9 billion in loans, and then raised the offer to $2.25 billion. In a game of chicken, the holdouts asked for $2.5 billion, and Obama’s patience ran out.” Steven Pearlstein put these numbers into perspective:

What you need to know about these vultures is that their idea of fairness is throwing 100,000 people out of work and denying retirees their pensions and their health benefits just so they can liquidate the company and maybe squeeze an extra 15 cents on the dollar from their Chrysler debt. Of course, to get that extra 15 cents, the hedge funds would probably have to fork over a penny or two to pay the army of $700-an-hour lawyers needed to spend two years working it through the bankruptcy process.

The greed factor here is really appalling, but bad intentions can sometimes produce a good result.

The greed factor here certainly is appalling, but not on the part of the group Think Progress would like us to believe is the problem. I mean, how dare secured lenders ask for more money than a paltry 30% of what they lent Chrysler? In the new world of what’s fair, apparently asking for 30% is unfair and greedy. And frankly with an administration which has tossed trillions around like they were beads at Mardi Gras, it seems that somehow $250 million more was just a “bridge too far” when it came to keeping the deal together.

More importantly, what in the hell is the President of the United States doing involved in this sort of process to begin with? Oh, wait, the UAW gets 55% ownership?

Nevermind.

Salmon again:

All of this is necessary but not sufficient for Chrysler to have any hope of a long-term future. One of the more interesting things going forward will be how Chrysler manages to turn itself into a smaller, nimbler, change-oriented company while being majority owned by the UAW — which is nobody’s idea of a change agent. In general, if you need a dose of creative destruction, big unions are not the place to look.

You think? Another wonderful deal put together by the folks who want to run your health care. And yes, I know this isn’t perfectly analogous to the British Leyland situation, but it certainly has some striking similarities. A labor union will most likely have to decide between it’s previous decades of focus and producing cars that people want and can afford. And government involved in the deal up to its armpits.  In case you missed it, the government will appoint four of the nine member board and the Canadian government will appoint one.  Fiat is essentially a management entity with only 3 on the board and a 35% stake.  And while the UAW will only have one seat, it will be a seat representing 55% ownership.

Yeah, nothing can go wrong with that.

~McQ


Newspeak Update

Remember: billions in earmarks are insignificant but, millions in bonuses are outrageous; “bi-partisan” actually means “one-party rule”; and now “bankruptcy” means “strong.” From Jake Tapper’s Twitter feed:

POTUS says bankruptcy “not a sign of weakness”…

Can’t you just see the White House Press Corps (excepting Tapper, of course) looking like the bunch of lapdogs that they are in response to that statement?

Ruh?

Ruh?

What's he talking about?  And where's Bo?  Less econo-stuff, more water dog hotness!

What's he talking about? And where's Bo? Less econo-stuff, more water dog hotness!

Bankrupt = strength? R'okay!

Bankrupt = strength? R'okay!

MORE: Tom Maguire is less than impressed with the President’s reasoning about shared sacrifice with respect to the Chrysler bankruptcy:

Uh, hello, how about the US taxpayer? Any props, exhortations, or acknowledgment of their role here? Sorry, MY role?

The Congress – yeah, they have to sacrifice an endless stream of donations from the UAW.


Fiat CEO Says Chrysler Deal Up To UAW

A fairly clear statement of intent if you ask me:

Fiat would walk away from a tie-up with US carmaker Chrysler unless unions agreed to a new, lower wage deal, Sergio Marchionne, the chief executive of the Italian motor manufacturer, said.

In an interview with Canada’s Globe and Mail newspaper, Mr Marchionne said he would scrap the deal unless Chrysler unions agreed to match the lower costs of Japanese and German-owned plants in Canada and the US.

“Absolutely we are prepared to walk. There is no doubt in my mind,” Mr Marchionne said in comments published online. “We cannot commit to this organisation unless we see light at the end of the tunnel.”

So, UAW and associated unions, job or no job?

Your choice.

~McQ


NYT Asks: “Why Can’t Cerberus Foot the Bill?”

Welcome to the club. I’ve been asking that question for some time now. Better late than never, I suppose:

Chrysler said the only reason it was back asking for more money so soon was that the car market was worse than it had expected two months ago.

This cavalier approach to the public purse raises a very big question. If Chrysler is really on track for a turnaround and all it needs is some financing to get over a bad patch in sales and debt markets, why doesn’t Cerberus Capital Management, which owns 80 percent of the company, put up the money itself? Why should taxpayers have to take the risk? That’s what private equity funds like Cerberus are supposed to do.

Cerberus and Daimler, which retained a stake in Chrysler, have promised to convert $2 billion in loans to Chrysler into equity, which should help reduce its debt. But Cerberus said giving fresh money would violate its fiduciary duty to investors, breaking company rules limiting how much it can commit to any given investment.

We suspect these rules would be more pliant if Cerberus deemed Chrysler to be a good deal.

It seems the secretive private-equity fund is willing to gamble on Chrysler’s survival with the taxpayer’s dime, but not its own.

The real question is, if it is violative of Cerberus management’s fiduciary duty to bail out its own company, why is it fiscally responsible for the federal government to do so?

And what does it say when the leader of liberal opinion has more qualms about a bailout than the federal government? Nothing good I would think.


Automakers – Gathering At The Trough Again

To be blunt about it, this just pisses me off:

GM said it might need as much as $100 billion in financing from the government if it were to go through the traditional bankruptcy process. Rick Wagoner, GM’s chairman and chief executive, said the bankruptcy scenarios are “risky” and “costly” and would only be pursued as a last resort.

Really? Well guess what – it’s even more “risky” and “costly” for the taxpayer to give GM another 100 billion bucks (and further on in the article it is acknowledged that a pre-packaged bankruptcy would cost about 30 billion).

GM claims its going to pare down its working force and model line. But what isn’t clear is how it plans on eliminating the legacy costs which still make it uncompetitive. Anyone know what would require them to confront that issue? That’s right – bankruptcy.

As for Chrysler:

Chrysler’s plan said the company would likely have to file for Chapter 11 protection if it doesn’t get additional loans from the government and concessions from unions, creditors and dealers. It said it would need $24 billion in financing if the company were to file for bankruptcy. But company officials said in a conference call that they believe a Chapter 11 filing is “not necessary” for Chrysler’s survival.

Uh no. Want more money? See Cereberus, the company you belong too and which is sitting on about 150 billion in assests. Let them pick up the tab. If not, see you in bankruptcy court.

This is ridiculous.

In particular, new opposition to further aid for Chrysler seemed to be building on Capitol Hill. In an interview Tuesday, Sen. Judd Gregg (R., N.H.) said no more taxpayer money should be given to Chrysler until its majority owner, private-equity firm Cerberus Capital Management LP, agrees to inject more funds into it.

Good. It’s about time this demand was made. What in the world is government doing throwing money at Chrysler when it has an owner with plenty of money? And Cerberus’ answer?

Cerberus said in a statement that it can’t put additional investments into Chrysler because agreements with its investors limit how much it can commit to any single investment. It added Cerberus has agreed to forgo any Chrysler profits before the government loans are repaid.

Tough beans. In that case, Cerberus had better find a way to sell off some of its investments to raise the necessary cash or be prepared to watch Chrysler hit bankruptcy court. Whichever choice it makes, it is not the job of the taxpayer to keep a marginal company afloat. And that’s even more true when that company has private assets upon which it can draw.

But when politicians are in the pain avoidance business, the Constitution is just a piece of paper and whatever they think they need to do to protect their positions of power will be done, regardless of law, principle or morality.

Just watch.

~McQ