It has been two years since Chrysler filed for Chapter 11 bankruptcy. According to this article, Chrysler has turned it’s first profit since the bankruptcy. This brings two issues to mind. First – that Chapter 11 bankruptcy can be a very effective tool for reorganizing a company. However, even after emerging for bankruptcy, it was still a long road for Chrysler to be able to actually make it as a viable company. It is important to keep this in mind when considering to file a Chapter 11 bankruptcy. Chapter 11 business bankruptcies tend to have a high rate of failure with it eventually ending up in Chapter 7.
Chapter 11 is, essentially, the Hail Mary pass in the last 5 seconds of the game when you are down 7 points. In this analogy, it means that the chance to tie the game is there, but the chance for a win is nowhere near certain. In bankruptcy, it means that the company has a chance to break even and to continue to operate and hopefully, it emerges either making money or in a position to eventually make money, but is far from a large profit center.
The second issue is that the government financed Chrysler’s bankruptcy to the tune of $7.5 billion. Chrysler made $116 million in one quarter (3 months). In other words Chrysler would have to make a similar profit for 16+ years to afford to pay off the government’s $7.5 Billion loan. This assumes that there is no interest on the loan.
The article makes the bald claim that Chrysler plans to pay off the government loans by June. I will be quite surprised if Chrysler is able to find financing in this economic climate to pay off the loans made by the US Treasury. Only time will tell.
Thank you for taking the time to read this article written by Phoenix Bankruptcy Lawyer Glenn W. Roethler. The views expressed in this article do not represent all of the views held by Greeves, Price & Roethler, PLC.