The Breakfast Club

Supply matters. That’s what I thought when I read about the Chrysler deal.

President Obama has criticized a minority of secured lenders who object to the government’s deal with the banks, Fiat, and the UAW. These investors think that a bankruptcy judge will give them a better deal, since their claims are senior to the UAW’s.

Never mind that political meddling in judicial proceedings is never a good idea. Never mind that using government-controlled lenders to reward political supporters is something we usually hear about happening in some third-world dictatorship. Will the government’s plan preserve Chrysler as a going concern?

My expectation is no. Chrysler has gone to the brink of bankruptcy one-too-many times. They haven’t had a profitable design since the late `80s. All their production now just depresses prices so GM and Ford can’t make money.

When an industry can’t make money on its core product, somebody has to go. Chrysler’s chronic weakness means that eventually they won’t be coming down for breakfast.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-04T20:44:52+00:00 May 5th, 2009|Global Market Update|0 Comments

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