Chrysler receives court approval for payments to dealers, suppliers


1. Unless it is a new dealership, the dealer principal or owners is NOT personally on the hook for anything. They have their own corporations that hold the franchise, and are responsible for the floorplan loans, leases, etc. That isn't to say that the dealer principal (or owners of the dealer group) don't have money at risk: they do, in the form of their original investment and any loans they may have made to the dealership. However, unless the owners of the dealerships are incredibly stupid, they could walk away from the dealership and put it into bankruptcy protection as well, without impacting their assets outside of the dealership.

2. WIthout permission from the court, the dealers would have got NOTHING. Welcome to bankruptcy: Chrysler has to get permission from the judge for pretty much everything (can I pay these suppliers? can I pay these dealers? Can I use the men's room?). The downside is that everything is basically bottle-necked via the judge, but the upside is that money doesn't just "disappear" while in bankruptcy. Its like being a kid again, where you have to ask your parents for your allowance and permission to do things all over again. The judge basically needs to decide what makes sense to do, based on the desired outcome. If the end is ultimately liquidation, then the judge has to preserve as many of the assets for eventual sale. If the outcome is a viable company, then the judge would look at preserving suppliers, dealers, employees and facilities necessary to keep the company going after bankruptcy.

3. The current creditors are stupid if they think that not paying suppliers, dealers, etc means they'll get more money. They won't. This cash is coming from the debtor-in-possession financing, and means they might stand a chance at getting something if Chrysler somehow survives. WIthout it, Chrysler is virtually worthless, and the creditors will see less they might if some kind of entity survives at the end (and none of it comes from the DIP money, the DIP gets paid back first). There aren't $6+ billion in assets in Chrysler right now. There will be some statutory payments that may have to be paid, and you can bet the gov't is going to get most of the first round of any cash from liquidation, which means close to zero for the rest of the debt-holders. Except maybe for the land value (assuming it isn't seized by the states/counties/cities to cover property taxes), who needs outmoded factories and empty office buildings? There is some value in some of the brands, but no one pays top dollar for assets bought out of bankruptcy. Liquidation here would mean a fire sale, and everything must go.

4. If you think that the dealers refusing to perform warrantee work will hurt Chrysler: think again. First, the judge can order them to perform the work, and can put people in jail for contempt of court if they don't. It's an unlikely outcome (because it could force the dealerships themselves into bankruptcy), but its a threat hanging over their heads. Second, the larger impact would be from the customers: they'll be more likely to blame the dealer before they blame Chrysler. I've had friends that worked in sales for less-than-desirable car companies, and believe me, the customers complain about (and to) the dealer, as if they personally built the machine, and they do not blame the manufacturer for issues in the service department. Chrysler is a large, faceless organization. The service writer is the guy right in front of them. Some people will get the work done and pay for it themselves because they'll feel they have no choice. But some won't, and routine things like oil changes will end up in Jiffy Lube and Pep Boys rather than the dealer. If the dealer does survive, and has product to sell, the act of refusing warrantee work will have also chased off a lot of potential repeat customers, and future customers (every angry customer has 19 friends that they can turn away from your company). It also exposes the dealer to the potential for lawsuits, because they can be seen as acting in the capacity of an agent when it comes to warrantee work, and by refusing to do the work, they could be viewed as being in breach of contract or potentially fraud. Even if the suits are without merit, it takes time, money and resources away from a dealership while they defend themselves, and makes for very bad local press for them. It would likely be cheaper to just do the work and eat the cost, than try to fight with their own customers.




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