Summary
President Obama may want Chrysler's bankruptcy to be quick, but terminated dealers can drag out the process in their quest for bankruptcy money. Even a quick bankruptcy can't solve Chrysler's underlying problem: it produces mediocre cars.
Analysis
Two factors are crucial to Chrysler's future. The first affects the length of the bankruptcy, while the second concerns Chrysler's future after it emerges from bankruptcy.
1. The dealers that Fiat plans to terminate will not go quietly.
Fiat has announced that it plans to eliminate a substantial number of dealers, probably in the several hundreds. But dealers may argue that state franchise laws protect them and/ or that they are entitled to damages. Regardless, either scenario makes it unlikely that the bankruptcy can be complete in four to eight weeks.
2. Chrysler does not make cars that people want to buy.
This is the underlying problem for Chrysler going forward. Chrysler has been going down this road for at least 10 years. As a recent Harvard Business Publishing piece argues, the best business model is to make insanely great stuff. http://bit.ly/SqjVA . Unfortunately, it’s been a long time since Chrysler has made great cars. Bankruptcy may ease Chrysler’s debt obligations, but it won’t make Chrysler’s cars any better.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
