1. One alternative to the sale of Chrysler was to cease operations and then liquidate (sell) the firm’s remaining assets. Chrysler did have a potentially valuable Auburn Hills, Michigan, headquarters building (although there is little demand for office space in the Detroit area). Discuss whether Chrysler should have been liquidated.
2. In its lawsuit, attorneys for the state of Indiana stated that the harm from showing preference to unsecured creditors such as the UAW, over secured creditors such as the state of Indiana pension funds, might do far more long- run damage to the U.S. economy than any short- term harm from the loss of jobs from liquidating Chrysler. Do you agree or disagree with that statement? As part of your analysis, discuss the harm that would arise from showing preference to unsecured creditors over secured creditors.
3. Were there alternatives to the government’s preferred bankruptcy structure that would have satisfied the state of Indiana pension funds? Explain.
4. Chrysler exited bankruptcy with all its debt cancelled, and GM may soon follow suit. Will that give GM and Chrysler an unfair advantage over Ford? Explain.
Walter P. Chrysler joined General Motors as manager of its Buick manufacturing plant in 1912 and became president of the Buick division four years later. In 1919, he left GM to join the Maxwell Motor Corporation, a failing GM competitor. Under his leadership, Maxwell Motor Corporation returned to profitability and was renamed the Chrysler Corporation. In 1928, Chrysler acquired Dodge Brothers and became the third of Detroit’s Big Three automakers.1
Chrysler continued to expand until the late 1970s, when Chrysler’s financial condition deteriorated and it received a $ 1.5 billion loan through the federal Chrysler Corporation Loan Guarantee Act of 1979. In 1984, Chrysler developed the enormously popular minivan, repaid its government- backed loans, and returned to profitability.2 Although Chrysler’s profitability fluctuated during the 1980s and 1990s, by late 1990 its profitability was high and steady. In 1997, Daimler Benz acquired Chrysler and renamed itself Daimler Chrysler. During the following decade, Chrysler lost market share, its quality deteriorated, and it suffered major losses. In 2007, Daimler Chrysler sold a majority interest in Chrysler to Cerberus Capital Management, LP, a large New York City-based private equity firm.3 A year earlier Cerberus had acquired a 51% interest in GMAC, GM’s financial subsidiary, which was also in financial difficulty.4