by Gongwer News Service
May 1, 2009

Yet another new day of reckoning hit Michigan’s economy on Thursday as Chrysler Corporation announced it would be forced to file for federal Chapter 11 bankruptcy protection after being unable to reach agreement with bondholders on a negotiated arrangement. But officials said the bigger story was that the automotive manufacturer was now in position for a dramatic rebirth with the agreement it had reached with Fiat S.p.A. and with virtually all its other stakeholders, unions and financers.

With all the focus on Chrysler, however, officials also acknowledged nervousness at what the move could mean for General Motors, which faces a June 1 deadline to see its reorganization plan approved.

While they praised what they saw as the rebirth of Walter Chrysler’s corporate offspring, officials were also angry that the company had been forced to file Chapter 11, something it succeeded in avoiding when it got government assistance in the late 1970s. And they worried about the short-term effect on the state’s revenues and economy by the company announcing it was shuttering its plants for two months.

Governor Jennifer Granholm told reporters that bankruptcy was not good for Michigan. “Certainty is good for Michigan.” While she was disappointed that the company was forced to file for Chapter 11, she was pleased that the company had a structure to reform itself and she was hopeful that it would mean the state could see new job growth in the future.

And U.S. Sen. Carl Levin (D-Detroit) told reporters that, with the day’s announcement, the state and nation were witnessing “the beginning of a rebirth for Chrysler.”

The major news was not that the company had to file for bankruptcy, which Mr. Levin characterized as a “a minor rock on the road to this rebirth.” The elements were all together for the company to recoup itself, Mr. Levin said, and that was the main element of this “wonderful story.”

And he said, “I hope the public will get the feel that this is a great day for the economy, a great day for America.”

But in talking with reporters, Ms. Granholm acknowledged there was risk to the announcement. It was absolutely critical, she said, that the bankruptcy filing in a New York City court be as short as possible to allow the company to move forward under its new structure.

She also acknowledged there was great risk that consumers will not buy the company’s cars during this period, but she said President Barack Obama helped deal with that by offering a government guarantee to back up vehicle warranties.

And she was confident that, as the economic recession eased, a “pent-up demand for new cars” will help Chrysler and the state’s other auto companies, General Motors and Ford, gain sales as well.

She was angry, however, that the company was forced into bankruptcy because some hedge funds holding bonds refused to reach an agreement with the firm on a settlement.

In a symbolic move, the House approved two measures Thursday that call on the governor to divest any state money from three hedge funds said to have stalled on the deal that could have kept Chrysler from filing for bankruptcy. The move was symbolic because the state had no money in those funds.

House Minority Leader Kevin Elsenheimer (R-Bellaire), who voted against both measures, said it was not a caucus decision to dissent, but an individual one.

He said while Chrysler may be a part of the state’s DNA, he could not back the government trying to exert leverage in what is a private negotiation.

The federal government’s intrusion into Chrysler and its insistence on a merger with Fiat were already bad enough and the resolutions just further that kind of government interference, Mr. Elsenheimer said.

“This is going too far,” he said.

And the Chrysler filing took away for a bit the state’s other Gotterdammerung moment when on Monday GM unveiled its restructuring proposal that would essentially turn over ownership of the company to the government and the UAW.

While President Barack Obama said on Thursday that the federal government does not want to be in the car industry for very long, and while Ms. Granholm and others said the state was using these opportunities to focus on jobs, and while everyone voiced optimism, it could not be lost on anyone the symbolic collapse of the state that the bankruptcy filing represented.

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