Well, I picked a hell of a day to get stuck on an extended plane journey, didn't I? So while I was up in the air (or, more often, on the tarmac, thanks to rain in Chicago), Chrysler declared bankruptcy. The plan is to do a pre-packaged bankruptcy that will allow the company to emerge relatively quickly, though of course, a judge still has to be willing to ride pretty roughshod over the holdouts for that to happen. Ultimately, I assume the judge will go along, but I also assume it will not be anywhere near as fast as the government and the Chrysler management have been hopefully asserting.
Joe Wiesenthal thinks that Chrysler will now be run well, because the UAW just became responsible for generating the revenue to cover their wages. I'm skeptical, for multiple reasons:
- We just demonstrated that the penalty to the workers for helping drive the company to the bankruptcy courts is not that high
- The above will make it relatively difficult to get capital for operations
- The record of worker-run enterprises isn't that exciting--if it were, everyone would do it. The unions can often still do better by maximizing their personal take rather than enterprise value, which is why German companies don't rule the world, and union-owned airlines showed back up in bankruptcy court. (Though to be fair, in those cases there is often more than one union competing for rent extraction)
- The people who have a seat on the board don't represent the workers; the UAW is dominated by the retirees. Those people typically have an extraordinarily adversarian attitude towards management, and also, they don't have an interest in maximizing long-run enterprise value. They have an interest in maximizing their pensions now, and who cares what happens when they die? This is a core problem with the UAW by-laws, one that is going to be very hard to fix, if it is fixed at all.
And though I'm not a gearhead, I'm a little surprised to hear the administration saying that Chrysler is going to be saved by--Fiat's world-class engineering. As far as I can tell, the whole deal is a huge bet on the small-car market catching on in a very different landscape from Fiat's high-density strongholds. Better hope gas prices spike a lot higher. (I certainly do: I own a Mini. Cap and trade could push my resale value into the stratosphere. Not that I would support a policy for personal, mercenary reasons . . . )
Blogging will continue to be light, as I am filing a column today and covering the Berkshire Hathaway annual shareholder's meeting pre-parties. Don't laugh; this is big business in Omaha. More as and when I can.