The subgame perfect Nash equilibrium might be for the administration to call Chrysler's bluff.
General Motors Corp. and Chrysler LLC technically are bankrupt and Chrysler is a step away from death, said Sean McAlinden, chief economist for the Center for Automotive Research in Ann Arbor.
"GM and Chrysler are insolvent. Without federal funding they are bankrupt," McAlinden said at a conference today at the joint office of The Detroit News and Detroit Free Press. If the government took half of all of the bailout money away, they would go back to being bankrupt, he said.
"GM will not meet the initial conditions of the loan. But the conditions will change so GM can keep them," McAlinden said.
His prognosis for Chrysler is not as rosy.
"Chrysler will go away," he said. "Most cats don't have that many lives."
McAlinden described the company as being in hibernation, operating at a "one beat per minute level." Chrysler idled all North American manufacturing plants this month and entire floors in its Auburn Hills headquarters are empty in the wake of recent 5,000 white-collar buyouts.
The company has been, for some time, working to consolidate staff from other locations in Auburn Hills and continues to do so, said spokeswoman Shawn Morgan, who took exception to comments that the purchasing department has all but been eliminated.
McAlinden said Chrysler needs $6 billion to pay its suppliers for last quarter's parts and he suspects the full $4 billion loan went towards these payments. Chrysler initially sought $7 billion from the government.
McAlinden said Chrysler may threaten to keep its factories closed longer as a bargaining tool in negotiations with the new Obama Administration.
IT WILL BE GOOD MONEY AFTER BAD. At least two of the legacy car companies are DOA.