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By Valentin Flauraud, Reuters |
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| A woman poses next to a Fiat 500 displayed at the 79th Geneva Car Show in March 2009. |
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From staff and wire reports
WASHINGTON — Chrysler filed for bankruptcy protection Thursday and will form an alliance with the Italian carmaker Fiat Group in an effort to revive the nation’s ailing third-largest automaker.
The Obama administration said it had long hoped to stave off bankruptcy, but it became clear that a holdout group of creditors wouldn’t budge on proposals to reduce Chrysler’s $6.9 billion in secured debt. Clearing those debts was a needed step for Chrysler to restructure by a government-imposed Thursday deadline.
Chrysler now has “a chance not only to survive but thrive” thanks to the deal with international car company Fiat and a $6 billion loan from the government, President Obama said Thursday.
He said the company’s decision to file for bankrupcy “is not a sign of weakness,” but rather a necessary step that will allow the company to survive.
Chrysler CEO Robert Nardelli says he will step down after the company emerges from bankruptcy protection.
Nardelli says on the CNBC cable network that the Treasury Department did not ask him to resign. But he felt it would be an appropriate time to leave after bankruptcy.
Chrysler filed for Chapter 11 bankruptcy protection in New York on Thursday with the hopes of emerging in as little as 60 days under the new partnership with Fiat. The government, which has already poured $4 billion in loans into Chrysler, would provide up to $8 billion more to carry the company through bankruptcy, said senior administration officials speaking on condition of anonymity. The government will also help appoint a new board of directors.
The deals give Chrysler “a new lease on life,” Obama said.
Under bankruptcy, Chrysler would still sell cars and the government would back its auto warranties. But Chrysler said Thursday that it will idle its plants during the legal proceedings.
After emerging from bankruptcy, the Auburn Hills, Mich.-based automaker would end up owned by the United Auto Workers union, the U.S. government and Fiat. The Canadian and Ontario governments, which are also contributing financing, would have small stakes.
But Fiat, which the Obama administration hopes can jump start Chrysler with its fuel-efficient and lower-emission technology, could end up the majority stakeholder. Fiat would initially get 20%, a share that could rise to 35% if certain benchmarks are met. Fiat said Thursday it could get an additional 16% by 2016 if Chrysler’s U.S. government loans are fully repaid.
Obama said Chrysler Financial, the arm of the company that makes loans to buyers and to dealers to finance their inventories, will be merged into GMAC Financial Services, once General Motors’ finance arm. The new GMAC will get government support. Chrysler’s base of dealers would also be pared down.
The president, who has previously urged Americans to consider refinancing their homes to save money and avoid forclosure, on Thursday urged people to buy American. “If you are considering buying a car,” he said, “I hope it will be an American car.”
The Treasury Department’s auto task force has been racing in the past week to clear the major hurdles that prevented Chrysler from coming up with a viable plan to survive the economic crisis ravaging nation’s automakers.
Along with the Fiat deal, the UAW ratified a cost-cutting pact Wednesday night.
Treasury reached a deal earlier this week with four banks that hold the majority of Chrysler’s debt in return for $2 billion in cash.
But the administration said about 40 hedge funds that hold roughly 30% of that debt also needed to sign on for the deal to go through. Those creditors said the proposal was unfair and they were holding out for a better deal.
“I don’t stand with them,” Obama said.
A person briefed on Wednesday night’s events said the Treasury Department and the four banks tried to persuade the hedge funds to take a sweetened deal of $2.25 billion in cash. But in the end, this person said most thought they could recover more if Chrysler went into bankruptcy and some of its assets were sold to satisfy creditors. This person asked not to be identified because details of the negotiations have not been made public.
On Thursday, a group of funds identifying themselves as 20 of Chrysler’s “non-TARP lenders” released a statement saying they had been sidelined during negotiations between lenders and the government. The group, which said it holds $1 billion in Chrysler debt, complained that the four banks were “obviously conflicted” because they had accepted money from the government’s Troubled Asset Relief Program while they had not gotten TARP money.
The group said its offer to the Treasury Department to reduce its claim to 40% was “flatly rejected or ignored.”
Fiat is getting its stake in Chrysler for giving the company access to its fuel-efficient technology, a move toward cleaner cars that the Obama administration thinks is critical to Chrysler’s future survival. The company has committed to building Fiat cars in Chrysler factories, to be sold as Chryslers.
Obama’s auto task force in March rejected Chrysler’s restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat.
Chrysler’s bankruptcy filing said it owes more than $10 million apiece to 20 of its unsecured creditors, many of whom are vendors and suppliers.
At the top of that list were: Ohio Module Manufacturing Co. ($70.3 million), BBDO Detroit Inc. ($58.1 million), Johnson Controls Inc. ($50.3 million), Continental Automotive ($47 million), Cummins Engine Co. ($43.9 million) and Germany-based Germersheim Spare Parts ($36.2 million).
Contributing: USA TODAY’s Mimi Hall and the Associated Press’ Ben Feller reported from Washington, USA TODAY’s Sharon Silke Carty and the Associated Press’ Tom Krisher reported from Detroit, Colleen Barry in Milan, Italy, Kimberly S. Johnson in Detroit and David Eggert in Lansing, Mich. |
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