CHICAGO, April -- Chrysler LLC officially announced on Thursday that the once auto giant will file for Chapter 11 bankruptcy shortly after U.S. President Barack Obama made a midday speech, in which he indicated that the troubled automaker will form an alliance with the Italian carmaker Fiat Group SpA.
In a statement, Chrysler said it was not able to obtain the necessary concessions from all of its lenders, which would have avoided the need for a bankruptcy proceeding. As a result, under the direction of the U.S. Treasury, Chrysler and 24 of its wholly owned U.S. subsidiaries filed voluntary petitions under Chapter 11of the Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.
At the same time, Chrysler announced that it has reached an agreement in principle to establish a global strategic alliance with Fiat SpA to form a vibrant new company. It will allow Chrysler and Fiat to fully optimize their respective manufacturing footprints and the global supplier base, while providing each with access to additional markets. Fiat power trains and components will also be produced at Chrysler manufacturing sites.
"While I am excited about the creation of the global alliance, I am personally disappointed that today Chrysler has filed for Chapter 11. This was not my first choice," said Bob Nardelli, chairman and CEO of Chrysler.
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| An employee works in a Chrysler dealer in New York, the U.S., in this file photo taken on April 24, 2009. |
Chrysler also will file a motion under Section 363 of the Bankruptcy Code requesting the swift approval by the court of the agreement with Fiat and the sale of Chrysler's principal assets to the new company. The benefit of this type of filing is speed. It should allow a leaner new company to emerge in a matter of 30 to 60 days, well positioned for long-term viability.
To push the Chrysler forward, the U.S. government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of "business as usual."
Chrysler also reached an agreement in principle with GMAC to become the preferred lender for Chrysler dealer and consumer business. GMAC will be able to offer the best long-term finance options for Chrysler dealers and customers with standard rate installment products.
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| U.S. President Barack Obama speaks about the Chrysler Chapter 11 filing and its partnership with Fiat from the White House in Washington April 30, 2009. |
Under the plan the Obama administration outlined Thursday, the Treasury Department will provide Chrysler with up to 3.5 billion U.S. dollars in DIP financing, and the Canadian government will provide around 800 million dollars and get 2 percent of Chrysler's equity. The United States has transferred 280 million dollars to a Chrysler warranty guarantee program.
The government will loan GMAC LLC additional money so it can take over financing of Chrysler vehicles from Chrysler Financial. The government already has infused nearly 6 billion dollars into GMAC.
After the partnership deal is completed, the Voluntary Employee Beneficiary Association (VEBA) will own 55 percent of the new company and the U.S. and Canadian governments will own proportionate shares of a 10 percent stake. Fiat will initially hold a 20 percent ownership stake in Chrysler. Fiat can conditionally increase its ownership stake by an additional 15 percent in three increments.
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| U.S. President Barack Obama (C) speaks about Chrysler and the auto industry, as he stands with his auto task force at the White House in Washington April 30, 2009. |
Chrysler also indicated that most manufacturing operations will be temporarily idled from next Monday. Normal production schedules will resume when the transaction is completed, which is anticipated within 30 to 60 days.
Nardelli, who is going to leave the company and return to Chrysler's biggest stockholder Cerberus Capital Management as an advisor after the transaction, assured that the new Fiat-Chrysler company will produce and support quality vehicles under the Jeep, Dodge and Chrysler brands as well as parts under the Mopar brand. Chrysler dealerships remain open for business serving customers. All vehicle warranties will be honored without interruption and consumers can continue to purchase Chrysler vehicles with complete confidence.
Chrysler's official bankruptcy announcement came after President Obama's speech about the Chrysler's future on Thursday ,after talks between the Treasury Department and the Auburn Hills automaker's creditors failed to reach an agreement on late Wednesday night.
The president harshly scolded the group of investment companies and hedge funds that balked at a debt restructuring. "I don't stand with those who held out when everybody else is making sacrifices," Obama said, calling them "speculators" who sought to endanger Chrysler's future for their own benefit.
The bankruptcy "will be quick, it will be efficient, it is designed to deal with those last few holdouts," Obama said.
He emphasized filing for bankruptcy "is not a sign of weakness, but rather one more step on a clearly charted path to Chrysler's revival."
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