Chrysler could be back in business a month after bankruptcy
Filed under: Company News, Economy
The Obama administration is exercising control over the U.S. auto industry with the kind of efficiency that dazzled the world in the 1950s -- and back then it was America's business management that was at the top of its game. In 1954, General Motors (GM) controlled 54 percent of the North American car market. Today, not so much.
Let's face it -- the bankruptcy of GM and Chrysler forced the companies to do in months what their managers and their boards should have done without government intervention over the past several years. The bankruptcy of these companies is a failure of American corporate governance on the biggest scale yet. As I argued in my book Value Leadership in 2003, boards and management are failing shareholders and change is required.
But President Obama did a great job of getting Chrysler to restructure itself before going to court, so about a month later it's poised to emerge from bankruptcy -- maybe as early as today -- the same day that GM ceased to exist after nearly 101 years. That's because a bankruptcy judge approved the sale of Chrysler to Fiat.
The deal will give the UAW trust 55 percent. Fiat will own 20 percent initially -- going as high as 35 percent if it reaches certain goals. The United States will own eight percent, and Canada two percent.This bankruptcy process has cost the U.S. a relative pittance -- at least when you compare it to the $12.8 trillion we've used to bail out Wall Street with nary a peep of complaint. Chrysler got $4 billion from the Treasury Department in December and $4 billion more this year.
For all those folks who want to let the free market operate unchecked, consider this: it took the incompetent free marketeers decades to drive these companies into the ground, and in mere months that the U.S. government has stepped in as the adults, it cleaned up their mess.
American is lucky that it managed to get some grown ups in power when it needed them.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
6-01-2009 @ 4:29PM
Decsatsv said...
The deal will give the UAW trust 55 percent. Fiat will own 20 percent initially -- going as high as 35 percent if it reaches certain goals. The United States will own eight percent, and Canada two percent.
Grown ups? A gang of thugs is more like it. Using the government's power for political profit, which begets more personal profit (in the form of bribes, I mean "contributions").
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6-03-2009 @ 10:39PM
jerry wells said...
Maybe some of these places should just change there policys
and look at ideas from people like the users of there products.
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6-01-2009 @ 5:34PM
Mike Smith said...
Mr. Cohan; I don't know what type of capitalist you are but I'd imagne you skew to the far left. Successful capitalism is about creative destruction, some firms fail and new ones spring up to take their place. In this case, the poor management of GM should have been routed out years ago and union leaders should have realized that they were helping lead the company to ruin. Today 14 plants will close and those people working at them, supposedly the very reason the administration interceded, are out of work. The worst of it is that the new GM has already announced plans to build plants in South America and China. How does this help our balance of trade or the people who were laid off? People I have surveyed who are lower middle class like myself do not intend to buy a GM or Chrysler car ever again because of this situation. The time to fix these companies was a long time ago and both the management and the union dropped the ball. The idea that putting ourselves deeper in a fiscal hole will help us is sheer lunacy. There is a historical precedent for this, its a country called Argentina. Check out how well off it was in 1900, and then flash forward to about 1940.
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6-01-2009 @ 7:12PM
Jim said...
Mr. Cohan;
Do you actually believe that our government is extremely efficient in solving problems like this in comparison to the top management of GM? Both are in the same league, slow to react, waste huge amounts of money in the process, and, unfortunately, we all pay for it, especially those of us losing our jobs. To imply that our government reacts swiftly and efficiently when required is obviously ridiculous; if that was true, we wouldn't be in the position we "average people who aren't wealthy" are in, and although GM's leadership definitely dropped the ball looking forward, it is crazy to think that the government and its way of operating is "efficient". I do agree something had to be done, but the scrutiny they put the US automakers through before helping/controlling them is acceptable only if the same government held the banks, etc. to the same level of responsibilities and accountabilities...
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6-02-2009 @ 2:29AM
James Raider said...
We are watching the slow death of an American industry. Its best days are unfortunately behind it.
http://pacificgatepost.blogspot.com/2009/05/detroit-icons-ending-more-than-era.html
Many of us are in mourning for an era that won’t return.
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6-02-2009 @ 4:54PM
moparnutzs said...
Puff & Fluff:
as only !; an over indulgent ,self serving, government entity can do.
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6-08-2009 @ 9:35AM
DJAurand said...
Mr Cohen, Just like Chrysler's pevious bailout, its not that some great leader arose, Iacocca then, Obama now, it that's the people making decisions had few choices other than the ones they should have made years before.
In the 70s Chysler got its labor costs down then as they are now, they cut the number of models then as they are now, etc. The playbook for Chrysler was written in the 1970s
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