Chrysler-Fiat?

[KillerGremlin]

Looks like Chrysler is going Chapter 11 and "joining forces" with Fiat courtesy of a second business plan approved by Obama. Obama is laying down the smackdown on hedge fund investors that want their cut back from Chrysler. Hopefully this works out better for the thousands of Chrysler employees than just watching Chrysler crash and burn. This current administration has a lot of stakes in a lot of places...crazy stuff.

[Bond]

So, I suppose the lesson we can take away from this is that: Chrysler was not quite big enough to be protected from failure, so they have to abide by the legal construct for a company that can not pay back its creditors.

Is this the rule of law creeping back into politics? For shame!

[Professor S]

If I were the staked investors I would have made Chrysler go into bankruptcy as well. To my knowledge, the previous offer that was made to the investors to avoid bankruptcy was absurd, like 29 cents on the dollar. From what I've heard bankruptcy will get them 60 cents on the dollar.

It's hard to argue those types of numbers.

If Chrysler is fit, they will survive bankruptcy and come back stronger. If not, then they should be moved into chapter 7 and sold off in parts. It is not the government's or a company's main duty to ensure employment of their workers. It is their duty to be a viable, profitable company, and in turn THAT ensure's employment and prosperity. If Chrysler can't prove them selves to be the latter, then they should fail and get out of the way for healthier companies like Ford, Toyota, etc.

[KillerGremlin]

Originally Posted by Bond

So, I suppose the lesson we can take away from this is that: Chrysler was not quite big enough to be protected from failure, so they have to abide by the legal construct for a company that can not pay back its creditors.

Is this the rule of law creeping back into politics? For shame!

haha...

I watched Obama's announcement, and I like how he was harping on how it shouldn't be the tax payer's responsibility to bail out the company. I agree completely!

For the Nth time, I'm a total finance noob, but it seems like stakes are high for investors and promises aren't really a promise. Like what about the hedge fund investors? I'm not sure how hedge funds work, but aren't the investors kind of getting the shaft by not getting their promised money? Or is investing in a company kind of like investing in the stock market...almost a gamble where you could lose money or turn a profit.

Promises though....oh man. Like the promised health care for the thousands of retired Chrysler employees. If Chrysler wasn't getting any help I wonder what would have happened to those employees. Seems like a promise is hardly a promise anymore.

Anyway, apparently filing for Chapter 11 isn't all that bad, it allows companies to reorganize the infrastructure and make the necessary changes to get things rolling again.

The only complaint people seem to be having is that big government is getting too involved with these companies, but not having regulation is how we got in this mess in the first place so I'm all for regulation. Even if it means Uncle Sam has stakes in major industries like the auto industry.

[Bond]

Originally Posted by KillerGremlin

For the Nth time, I'm a total finance noob, but it seems like stakes are high for investors and promises aren't really a promise. Like what about the hedge fund investors? I'm not sure how hedge funds work, but aren't the investors kind of getting the shaft by not getting their promised money? Or is investing in a company kind of like investing in the stock market...almost a gamble where you could lose money or turn a profit.

Well, an investment is only guaranetted to be paid if it is insured by the FDIC. If you look at Citigroup and other companies that the government has taken over, if you want to invest in their corporate bonds, they are now FDIC insured, meaning if the corporation is unable to pay you back, the government will be the creditor of last resort and pay you.

Corporate bonds and such are only paid back to the investor if the company has enough money to pay you your interest and its creditors. In the event that the corporation becomes illiquid and unable to pay back its creditors, the corporation can file for bankruptcy and no longer have to pay the investor. There is no guarantee.

The issue is two-fold. One, corporate bonds and such are rated by agencies such as Moody's, and many of these ratings were inaccurate and did not properly identify the amount of risk the investor was undertaking. Two, there is a moral issue when the government overtakes some companies that cannot pay back their creditors, but not other companies.

Edit: Not even municipal bonds (investing in local municipalities) are guaranteed. The only "truly safe" investment is in treasury bonds, in which the government guarantees to pay you back. This is why everyone is buying treasury bonds right now, even though their yield is extremely low, at around 3%. Of course this yield is artificially low due to the Federal Reserve, but that is a whole other issue.

[Ric]

This Chrysler / Fiat merger could actually prove to be quite a sound one. I do not know much about the car market in the us but in europe and the uk especially Fiat are one of the major suppliers of cars vans trucks buses etc, theres millions of them. Far more I think that there are Chryslers.

So you see this merger will be quite a strong one by those odds. It will also define a unified trade alliance across the us and europe. That can only be a good thing for the economic prospects of both companies.

[Angrist]

Ric, I don't think I've ever seen a Chrysler on Dutch roads. I don't pay much attention to cars, but I doubt they sell them here in (mainland?) Europe.

[Ric]

Yes Angrist, that's what I am saying, I have not seen many (Chryslers) in England. I saw none in France or Spain when I was traveling, there were several in Berlin when I lived there though, mainly Crossfires.

So how many Fiat's do you american dudes see kicking around over your side of the Atlantic?

If the answer is not many or none then mabey in the future you will and we will see more Chryslers in Europe?

[Bond]

I believe Fiat stopped doing business in America quite a while ago.

[manasecret]

Yeah, I know the Fiat name and have seen a few, but only very rarely and I don't think lately.

[KillerGremlin]

Thanks to my cool European friends I know about Fiat and have heard of them prior to this transaction. I'm sure Fiat working with Chrysler will only equal good things in the long run.