America’s big automakers have all been in serious need of cash advance loans and debt relief for some time now. Overproduction of consumer vehicles that burn through gasoline and take up too much room on the country’s current highway system has been the byproduct of poor planning by top automobile executives. Now the time has come for them to reap what they have sown.

Unfortunately, this means that many honest, hard-working employees are losing their jobs, thanks to the economic corpulence of those who may never have known what it truly means to struggle to survive. This time, there’s no bailout: Chrysler has bankruptcy on their minds. Chapter 11 bankruptcy.

Average taxpayers may get nothing

Following the trail of Chrysler news, Michael de la Merced blogs for the New York Times that the restructuring battle has changed locales, from board rooms to bankruptcy court. Chrysler and the Obama administration did not obtain the consent they needed from secured lenders, so Chrysler is bankrupt.

de la Merced wonders what will happen when it comes to the company’s assets. The government has poured billions into Chrysler and Chrysler Financial, and investors are out there. The taxpayers should have a say in who gets their hands on the company’s assets, but a bankruptcy court will not likely grant this. I say the people should voice their displeasure.

Follow the Chrysler stock symbol

Investors will argue that they have first claim because they’d “see greater recovery in liquidation,” which they contend would yield about 65 cents on the dollar. By contrast, the Treasury’s most recent plan for creditors via Chrysler’s main bank lenders (JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs) would have supposedly delivered only 33 cents on the dollar.

But investors hold “first lien” on Chrysler’s assets, so they’re first on the list to be repair for their investment. They hold a more senior position than the government for Chrysler debt. And since so much of Chrysler is already “on dibs,” the government is likely to provide unsecured debtor-in-possession financing that comes with Chapter 11 bankruptcy.

The government would then be able to enforce their will on investors (by law). If Chrysler can come up with two-thirds of the amount of the debt and a majority of stockholders can agree on reorganization terms to foist that plan upon holdouts. Such a simple majority is much easier to come by that the near unanimous agreement usually needed for out-of-court debt consolidation to work.

Is this surgery a success?

But will the government’s plan succeed? They may not have the majority they need by law. Many of Chrysler’s senior creditors voted against such a plan, as have big banks.

The government is pushing a prearranged bankruptcy plan where a new corporate entity for Chrysler would be formed, containing positive assets. United Auto Workers would hold 55 percent equity through its health-care fund, Fiat would hold up to a 35 percent and the government would the remainder. This agreement would open the door for Chrysler to drop its liabilities and unfavorable contracts easily. The government wants this to happen quickly; it’s what experts have called “surgical bankruptcy.” Time will tell if they get it.

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