Tuesday, June 9, 2009

The Obama Administration, Chrysler, and Dealergate

A bankruptcy judge has approved the Chrysler dealer franchise cuts. The 789 dealers being cut cannot sell Chrysler products after today.

Let me expand on this.

Each franchise was purchased from Chrysler for a significant amout of money. These franchises are owned by individuals, partnerships, and companies; they are not owned by Chrysler. Many/most of these franchises are profitable. They do not cost Chrysler anything; they are a source of profits for Chrysler. Yet they are being taken from their owners without compensation (i.e., stolen) and, in many cases, given to others at no cost. This is not a decision any businessman would make — which is part of the reason it's so clear these closures are political and why this scandal is being called "dealergate".

As for the rest of the Chrysler bankruptcy "deal", Justice Ruth Bader Ginsburg had issued a stay on the sale of Chrysler assets to Fiat. The stay was issued so secured creditors (especially state and teacher pension plans) could appeal their legal rights being abrogated in favor of the lesser rights of unions and other unsecured creditors. That stay was vacated this evening, which means the Supreme Court won't consider the appeal and the sale can go forward.

So the Administration gets its way — at the expense of company, investors, and the rule of law.

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