i am not shorting yen, but may go long cad
i really am wary of japan for all the good reasons, but am also wary of all other wastrels
in the mean time, tough time, stratfor on chrysler
Geopolitical Diary: Chrysler Files for Bankruptcy
May 1, 2009
U.S. President Barack Obama announced Thursday that automaker Chrysler filed for Chapter 11 bankruptcy, allowing it to restructure its debts and consolidate profitable assets into a new company. At the heart of the deal is an agreement with Italian carmaker Fiat, which will take an initial 20 percent stake in Chrysler. Fiat has an option to increase its holdings to 35 percent if certain performance criteria are met (such as bringing a fuel-efficient engine family to the U.S.-manufactured Chryslers and allowing Chrysler to use its global distribution network), and it could become Chrysler’s majority owner by 2016. As part of the bankruptcy deal, the U.S. government will take an 8 percent stake in the automaker, while the Canadian federal and Ontario provincial governments together will take a 2 percent stake.
Chrysler has 54,000 employees, and that – combined with the ramifications for the U.S. automotive supplier industry, particularly in the manufacturing states of the Midwest – makes the company’s fate a deeply political issue within the United States. But the impact of the bankruptcy will be felt in other countries also. In fact, the U.S. plan for Chrysler hinges on a transfer of technology from Europe, meant to help the beleaguered company learn the ways of small and efficient automobile manufacturing. The irony is that Chrysler intends to keep Jeep and Dodge — neither of which are considered small or efficient — as the core assets of its new fleet.
A further irony is that Chrysler has turned to the Italian automaker Fiat, which has had financial difficulties of its own, for manufacturing and business acumen. In Europe, Fiat’s vehicles have suffered decades of image problems, depressing the price that the Turin-based company can ask for its cars. Furthermore, Fiat went through exceedingly difficult times in 2003 and 2004, when (again ironically) it was General Motors that was nearly forced to bail the company out. By 2005, Fiat was in such dire straits that it exercised an option to sell its car division to the American manufacturer, forcing GM to buy it at market price. But GM was so wary of Fiat’s enormous debt and unimpressed by the car division that it chose to pay a $2 billion penalty instead of taking ownership.
Further questions arise over the impact that the Chrysler bankruptcy will have on U.S. neighbors Canada and Mexico. For Canada, the key is Ontario’s manufacturing sector, which accounts for 42,000 assembly and 75,000 auto parts supplier jobs. Having suffered heavy job losses in both sectors in 2007 and 2008, the minority Conservative government cannot allow further economic hardship to strike in Ontario — the government already has faced multiple challenges from the Canadian Liberal Party during its tenure.
For Mexico, the matter is more than political: It is a matter of life and death. The auto-manufacturing sector employs roughly 450,000 people — 100,000 in Ciudad Juarez alone. Juarez is at the center of a drug war that has pitted the Mexican army and federal law enforcement against several cartels, which also are battling each other for control over key drug transshipment points into the United States. Massive layoffs in the automotive sector would create a large pool of disaffected but able-bodied people, who would be great recruits for the cartels. The situation also could widen the rift between the notoriously rebellious and independent-minded residents of Chihuahua and the federal government in Mexico City, complicating efforts by federal law enforcement to conduct operations in Juarez.
The financial burden of a potential collapse of the automotive sector would only add to several economic and social problems that Mexico faces. Mexico is suffering from the impact of swine flu, substantial decline in remittances from emigrants living abroad and low prices for its energy exports — which the government depends on for about 40 percent of tax revenue. Added to this would be the cost of a program that obligates the government to pick up one-third of autoworkers’ salaries when companies suspend factory operations.
The implications of the U.S. auto industry developments for Mexico and Canada will not be clear until the situation regarding GM – which also has been faltering — is resolved. A restructuring plan for GM as well as Chrysler could add to the implications for auto suppliers in the United States and its immediate neighbors in North America. But GM has a much more extensive network than Chrysler does outside of North America — with significant operations in Europe (Austria, Belgium, France, Germany, Poland, Russia, Spain, Sweden and the United Kingdom), South America (Argentina, Brazil, Chile, Colombia, Ecuador and Venezuela), Africa (Egypt and South Africa), Asia (China, India, Indonesia, Japan, Korea and Thailand) and Australia. The possibility of a GM bankruptcy has already soured relations between the Obama administration and the German government, which refuses to rescue GM’s Opel division. That issue has had political ramifications, months ahead of the German election in September.
Given GM’s global reach, the potential collapse of that company, following the Chrysler bankruptcy filing, would cause shock waves for a number of countries and leave their governments to deal with the domestic effects. And that might sour the Obama administration’s relations with some key allies in the future.
|
