General Motors, for one, will be watching closely to see how Chrysler's bankruptcy plays out. It may face the same fate in just a month, when its deadline from the government approaches.
But all automakers have an interest, because they share a supply chain. If the suppliers can't deliver parts, it could shut down production lines at Toyota, Honda and Ford.
Ford said Thursday it is closely monitoring the situation. "Our industry is highly interdependent, and the health of the supply base and dealer network is critical for all automakers," Ford said.
Lemos-Stein predicts there will be a lot of bumps in the road, including many auto-supplier bankruptcies in the coming months. Chrysler announced it is shutting down production today for 30 to 60 days, freezing the revenue stream for its suppliers. Many suppliers are already reeling from the news that GM is shutting down many of its assembly plants for up to nine weeks starting in May.
No one knows how long Chrysler's bankruptcy will take. Although the case was filed in the Southern District of New York, which has experience with speedy bankruptcy cases, judges are obliged to listen to each interested party that wants to be heard, which could drag out the process.
The automaker's bankruptcy filing listed assets of $39 billion. Its top 25 suppliers, attorneys and advertising firms are owed $575 million.
Already, people are asking for a voice in the bankruptcy. According to documents filed with the court, 14 auto suppliers say they are interested parties. Ford and Mercedes-Benz have filed asking to be notified of anything going on in the court. Al group calling itself the Committee of Consumer Victims of Chrysler LLC and the Ad Hoc Committee of Mesothelioma and Lung Cancer Claimants have filed. The list will likely keep growing.
There are other big questions, such as what happens to Chrysler's financial services arm? The government named GMAC as Chrysler's new financing company, and it's still unclear what that means for Chrysler Financial. That company is now at risk of bankruptcy, too, Lemos-Stein says.
There is also concern that the bankruptcy filing will scare away consumers, who might wrongly believe it means Chrysler is going out of business. Thursday, Obama pointed out that the government is backing Chrysler's warranties now.
"No one can blame car buyers who shied away from brands that were mentioned in the same breath as the word 'bankruptcy,' " said Philip Reed, consumer advice editor for Edmunds.com. "Now that their warranties are being guaranteed, Chrysler and GM vehicles are good deals which are worth considering."
"Last week, people were asking if there'd be a Chrysler. This week, the government's behind Chrysler," says Mike Boudreau, director of corporate reorganization firm O'Keefe & Associates.
History of troubles
The last American automaker to file for bankruptcy was Studebaker in 1933. After emerging from bankruptcy, it continued operating, albeit struggling at times, until the mid 1960s.
This isn't the first time Chrysler has found itself in trouble. In 1979, then-CEO Lee Iacocca persuaded the government to guarantee more than $1 billion in loans that the automaker wouldn't have otherwise been able to get. Chrysler returned to profitability in 1983 and repaid the loans early.