With the U.S. government refusing to put taxpayer capital behind the GM/Chrysler merger (see GM, Chrysler on Hold as Aid Hopes Fade), the question now turns to whether, and how long, Chrysler can survive on its own.
As reported by CNBC:
A deal to merge General Motors and Chrysler has hit an impasse after the Bush administration ruled out funding for it, putting any merger on hold until after the U.S. presidential election, three people with direct knowledge of the talks said on Thursday.
My Comment: Finally a logical response to what would have been a disastrous combination (see GM and Chrysler Near and Agreement, More GM and Chrysler Shenanigans, A Disastrous Deal, and GM + Chrysler = Ugh! for background on my views).
The article continues…
The development adds a new element of uncertainty for the embattled U.S. auto industry as Detroit’s political allies warn the sector faces a deepening financial crisis that threatens tens of thousands of jobs.
It also opens the door for Cerberus Capital Management, which owns Chrysler, to restart talks with the Nissan-Renault alliance, one of the sources said. The private equity firm had seen the alliance as a backstop to its talks about an outright acquisition of Chrysler by GM one of the sources said.
My comment: I do not see a combination of Nissan-Renault with Chrysler as viable either given Chrysler’s balance sheet. Who in their right mind wants to inherit Chrysler’s problems, …especially in the current environment? To me therefore, the only element of uncertainty that remains is how long Chrysler can survive before it must seek bankruptcy protection.
Look no further than Daimler for evidence that Chrysler is on the precipice. Daimler recently wrote-down the value of its 19.9% stake in Chrysler to zero (see Daimler: Chrysler Stake Now Valued at Zero). After all, who has better information about the value of Chrysler than its former owner? And that former owner is now signaling that Chrysler equity is worthless.
In normal times, Chapter 11 would be an option for a firm in Chrysler’s position. It could continue to operate out of bankruptcy in the hopes of reorganizing the firm and restructuring its debt. However, given the current economic environment, DIP financing from private investors is likely unavailable. This would suggest that a speedy liquidation of Chrysler’s assets might not be too far off.