Deal or...Not so Much

I've taken my time to study, and to try to comprehend, the deal the Government is pushing to revive Chrysler from bankruptcy.  Its not the classic deal one would see negotiated between heavy weights, like John Malone or John Chambers, one that would create a significant return on investment or entry into a new market.  Plain and simple, when you cut through the muck, its a deal being sculpted to pander to a constituency that helped elect the current President.  If you are a citizen of the USA whose tax dollars were invested in Chrysler you have received a pathetic return on your recent investment.  Let me explain. The deal being crafted gives the Union, or a Trust on its behalf, 55% the new company and 1 board seat.  This equity stake is, theoretically, to be used to fund an underfunded pension plan for existing and retired workers.  The citizens of the USA, via their goverment appointed negotiators, will receive 8% of the company, will be asked to eventually invest another $6B + or - and will appoint 4 Board members.  And thanks for the initial $6B you invested, its now gone.  The Canadian government will invest $1.4B in the new Chrysler, will appoint 1 Board member and require that 20% of the production stays in Canada.  So far, of the 9 Board seats, two governments and the union will appoint 5 members, or a majority.  Are you seeing the light?  And, best of all, and perhaps the saviest deal maker at the table, Fiat will invest $0, thats rights $0, will "transfer technology" for the development of fuel efficient autos and will manage the business.  Let's see, I put no money in, I use my company's technology to attempt to expand my business into the USA and Canada, I get to run the company, AND I eventually can own up to 33% of the entity if it succeeds?  Where do I sign?  How much Chianti or Sangiovese was served during these discussions?  By the way, how profitable has Fiat been in its existing markets competing against the likes of BMW, Mercedes Benz, Toyota and other global automobile manufacturers?  And why did none of these other companies want a piece of this action?  Ask the Chairman of Damler Benz, who couldn't sell Chysler fast enough.

Fast forward to the labor negotiations.  The entity that owns 55% of the company will negotiate against itself?  How do you think they might turn out? 

If my recollection of GAAP accounting serves me correctly if an entity owns more than 19.99% of a business it must be reported in the investments section of its financials.  If it owns more than 50% of the entity its a subsidiary that has to be included in the consolidated financial statements.  Thus, the UAW will consolidate Chrysler's results into its own financial statements?  How will that work? Will it show an elimination for the union dues paid by Chrysler workers that account for all of its revenues?

This deal, plain and simple, is not so much a deal as it is an edict from the current administration to structure the business for the most benefit to the union and its members.  You, American taxpayers, got a bad deal.  You received no return on your initial investment ("we all must share the pain") and the existing bankruptcy laws of this country were usurped to create the structure that is now being proposed for Chrysler.  Lawsuits from previous senior creditors have already been filed.

Were the same considerations given to the Steel industry?  The Airline industry?  These proud USA industries, which had similar uncompetitive cost structures and employee benefit packages as the auto industry, were forced into bankruptcy court to sort out their outdated business models and cost structures.  They exited and survived to fight another day.  I have my doubts the deal being structured by the governement will allow Chrysler to do the same.  And you can bet if the company finds itself in financial distress your hard earned tax dollars will be used once again to save a dinosaur from extinction.