The Last Leg of the Chrysler Bankruptcy

UPDATE:  The Supreme Court has released the stay, and opens Chrysler to join Fiat by the end of the week.

The final acts of the Chrysler bankruptcy are being played out in the courts in the next few days.  If nothing is altered, Chrysler will once again cease to be an American company, but will become a wholly owned subsidiary of Fiat.

The Indiana State Police Pension Fund, the Indiana Teacher’s Retirement Fund and the state’s Major Moves Construction Fund claim the deal unfairly favors the interests of the company’s unsecured stakeholders ahead of those of secured debtholders such as themselves.  The funds also challenged the constitutionality of the Treasury Department’s use of Troubled Asset Relief Program, or TARP, funds to supply Chrysler’s bankruptcy protection financing. They say the Treasury did so without congressional authority.

Ah, but who cares about a little thing like constitutionality?

In documents filed to Justice Ruth Bader Ginsburg, lawyers for the funds asked to extend a stay on the sale, which is set to expire Monday at 4 p.m. The funds are seeking to have the high court re-examine the case, after the United States Court of Appeals for the Second Circuit upheld the sale Friday afternoon.

This bid will very likely fail.  Frankly, the Supreme Court doesn’t want to get involved with this mess, and observers would be shocked if Justice Ginsberg wanted to dive head long into this fight.

But the issues are real.  And the reality of the amount of intervention by the Obama Administration in directly arranging this bankruptcy is startling.  More than 30 hours of testimony and dozens of e-mails in the court of U.S. Bankruptcy Judge Arthur Gonzalez lift the curtain on how forcefully President Barack Obama’s automotive task force pushed Chrysler LLC into bankruptcy and into the arms of Fiat SpA of Italy.

The last memory of such government intervention was Harry S. Truman in 1952, when he seized the U.S. steel industry.  Obama’s handpicked steward, Steven Rattner, fired General Motors Corp. Chief Executive Officer Rick Wagoner and forced Chrysler and GM to make radical changes the companies had struggled to address for years.  Rattner, a reporter-turned-investment-banker who is described as relentlessly ambitious, has become — with Obama’s blessing — the chief architect of U.S. industrial policy.  Rattner was unfazed by his lack of experience in the auto industry and, after a short period of research, began quickly making decisions and demanding results.

Make no mistake; since February, it has been Steven Rattner who has been running GM and Chrysler.  He decided which deals to make.  Rattner decided what car makes to cut.  Rattner was micro-managing operations, and does so to this day.  More documents continue trickling out, showing that the government really was micromanaging GM and Chrysler for well over 6 months…despite Barack Obama’s denials to the contrary.

The Chrysler bankruptcy will come under even more scrutiny, as dealers cry foul.  There have been numerous protestations from Democrats and Republicans alike on the methodology used to cancel dealer contracts.  Some accuse the Obama Administration of playing politics, since a disproportionate number of dealers were Republican supporters.  Others challenge that there was no rhyme and reason to the choices, stating that some high sales dealerships were voided in exchange for saving lower sales dealerships.

All in all, the whole thing is a mess.  There is a better than even chance that this all blows up, and if it does, it will blow up in none other that Barack Obama’s face.