Readers may recall that we’ve been of the view that the expedited bankruptcy planned for GM would run into more snags than its advocates assume. We have not felt as strongly on that point as far as Chrysler is concerned, since that deal has vastly fewer moving parts.
Nevertheless, a hold-up on Chrysler illustrates the sort of impediments that need to be cleared up. The number three automaker has not yet secured the right to use all the tools it needs to manufacture cars. That is not to say Chrysler won’t get this matter resolved, but the sticking point illustrates how messy big bankruptcies are.
From Bloomberg (hat tip reader Scott):
Chrysler Group LLC, created out of the best assets from its bankrupt predecessor, can’t make new cars until it gets needed tools tied up in legal disputes,….
The streamlined carmaker, created two weeks ago, may need mediation to resolve disputes over access to tools, Frank Oswald, a Chrysler lawyer from Togut, Segal & Segal LLP, told U.S. Bankruptcy Judge Arthur Gonzalez in Manhattan today. Oswald was updating Gonzalez at a hearing on disputes over “cure costs,” or amounts owed to suppliers to resolve contracts signed before Chrysler’s bankruptcy.
“We don’t want to have a situation where, after rushing to get the sale closed in 42 days, Newco is unable to start up production because we don’t have necessary parts,” Oswald said, referring to the new Chrysler entity.
Of 500 objections to Chrysler’s proposed cure amounts, only 70 remain unresolved, Oswald said in an interview after the hearing. He said he doesn’t know of specific tools Chrysler Group is missing. Oswald said lawsuits may need to be filed “to the extent that there are recalcitrant suppliers.”
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The big three aren't the huge vertically integrated (self contained) monsters that they used to be. Now that they've outsourced most parts production, they're more like final assemblers. Any one of those suppliers has an effective veto power on the restart if they think they're going to get screwed. The thing is that even if they wanted to take a beating, they couldn't financially.
It's become common now for big companies to string vendors out to as far as net 120! When your key suppliers are that dependent on huge amounts of nearly free credit, market tightness alone can kill them. Neglect and abuse guarantees it. I predict that all three BK's (Ford will go down on 12-24 months) stall simply because their supply chains will have evaporated by the time the get around to needing them again.
I work for a big Chrysler supplier. I won't say much, but the story's spot on.
Rick, with all due respect, you're clueless on the situation. A few suppliers have some power, my company got a seat on the new board alongside FIAT, the UAW, and the U.S. and Canadian governments, but most have little say and are in such a bad business situation themselves that they'll be forced to take whatever they're given. Suppliers are going down left and right right now and that's causing major problems for all automakers, not just GM and Chrysler.