Even with the artificially sped up calendars ruling mall displays, it's an odd time to think about Christmas. Investors can be forgiven for feeling a cold wind, however, considering that Chrysler is in bankruptcy - again. So will this second strike be the one that finally puts the company on the path to long-term viability, or will it only find itself without a leg to stand on once again?

Strike One
Chrysler's first brush with bankruptcy unfolded in 1979 and culminated in the December decision to bail out Chrysler to the tune of $1.5 billion.

Technically speaking, it wasn't an official bankruptcy. A Chapter 11 was never entered into the books. The company, under the guidance of President and CEO Lee Iacocca, underwent an unofficial bankruptcy before even going to the government. It used its flagging performance and the specter of a looming bankruptcy to force serious concessions from the union and its creditors. Then it went to the government with documentation about how far it had already come in cutting costs and planning for recovery, just like any smart consumer looking for a consolidation loan. (For more on this, read Chrysler And The 1979 Bailout.)

The Play
Chrysler's precarious position at the time owed a lot to the oil crises, stagflation, foreign competition and, yes, government regulation. New regulations in the '60s and '70s did put more of a burden on Chrysler than it did on Ford (NYSE:F) or GM (NYSE: GM) because the latter were able to spread those extra legislated expenses over a larger volume of vehicle sales. On the flip side, however, Chrysler's deal with the government secured lower lending rates than the healthier Ford because the company was explicitly backed by the government - even though Ford was strong and solvent. (For background on Ford, read Henry Ford: Industry Mogul And Industrial Innovator.)

Still, the bridge loans did carry Chrysler through the hard times and the company did reasonably well - until now.

Chrysler paid back its explicit loans years ahead of schedule, but was never assessed a "fee" for the government backing that lowered its cost of capital. Despite certain shortcomings, the Chrysler bailout in 1979 has largely been seen as a success. That line of thinking is being questioned now that Chrysler is once again languishing due to high fuel costs and foreign competition.

Strike Two ...
Uncle Sam has saved Chrysler with money from taxpayers' pockets despite the fact that it failed the same test twice. For the sake of taxpayers' investment, we have to hope that this chance will prove to be the charm for Chrysler. From the perspective of bondholders, however, Chrysler has reneged on its debts yet again. This will ultimately raise lending costs for Chrysler in the future - lenders have long memories - and add yet another hurdle to the company's recovery. There may be room for another miracle for Chrysler, but it's hard to believe in such things in the dog days of summer.

Related Articles
  1. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  2. Savings

    These 10 Habits Will Help You Reach Financial Freedom

    Learn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
  3. Investing Basics

    What are the fiduciary responsibilities of board members?

    Find out what fiduciary duties a board of directors owes to the company and its shareholders, including the duties of care, good faith and loyalty.
  4. Budgeting

    How Much Will it Cost to Become President In 2016?

    The 2016 race to the White House will largely be determined by who can spend the most money. Here is a look at how much it will cost to win the presidency.
  5. Entrepreneurship

    10 Ways to Be a Successful Entrepreneur

    Are you hoping to launch your own business and work for yourself? If so, here are the top 10 tips for entrepreneurs.
  6. Budgeting

    Six Most Popular Hobbies You Can Do For Free

    Does your budget not allow you to have expensive hobbies? Here are six great ideas for occupying your free time without spending money.
  7. Economics

    What's a Horizontal Merger?

    A horizontal merger occurs when companies within the same industry merge.
  8. Investing

    A Breakdown Of Stock Buybacks

    Find out what these company programs achieve and what it means for stockholders.
  9. Bonds & Fixed Income

    Simple Math for Fixed-Coupon Corporate Bonds

    A guide to help to understand the simple math behind fixed-coupon corporate bonds.
  10. Home & Auto

    This Is How You Could Live in the Philippines on $1,000 a Month

    Consider what your life might be like in the Philippines on a $1,000 budget, and determine whether this Southeast Asian country is for you.
  1. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>
  2. Does working capital include stock?

    A certain portion of a company’s working capital is generally composed of earnings; however, current short-term assets that ... Read Full Answer >>
  3. Does working capital include short-term debt?

    Short-term debt is considered part of a company's current liabilities and is included in the calculation of working capital. ... Read Full Answer >>
  4. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  5. What is the range of deductibles offered with various health insurance plans?

    A wide range of possible deductibles are available with health insurance plans, starting as low as a few hundred dollars ... Read Full Answer >>
  6. How do I know how much of my income should be discretionary?

    While there is no hard rule for how much of a person's income should be discretionary, Inc. magazine points out that it would ... Read Full Answer >>

You May Also Like

Trading Center