Chrysler into bankruptcy; US official

By David Twomey | May 01st, 2009

Scoring the dubious honour becoming the first every member of the Detroit Three to do so, Chrysler LLC will proceed with Chapter 11 bankruptcy protection now that talks with debt holders have broken down, an official in President Obama’s administration told Reuters newsagency.

The news comes as Chrysler also appears close to wrapping up its partnership agreement with Italian carmaker Fiat S.p.A.

At the same time the US administration said President Barack Obama and the federal auto task force would address the Chrysler reorganisation at noon New York time.

Several hours into its final day of a government deadline for reorganisation Chrysler still had not gained the bondholder support it needs to move forward with a restructuring and avoid the first-ever bankruptcy filing by a Detroit Three carmaker.

Talks among those parties and the US Treasury broke down overnight despite a sweetened Treasury offer.

An administration official with knowledge of the talks said the holdout creditors were provided a final opportunity to approve an increased offer of US$2.25 billion, up from US$2 billion, but failed to agree to the offer.

“Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward,” the official told Reuters newsagency.

Prospects for an alliance with Fiat were enhanced when UAW workers voted to approve concessions late Wednesday.

The signals about how the discussions between Chrysler and Fiat were going were mixed with Italian newspaper Corriere Della Serra reporting that a deal with Fiat had been signed, but Fiat later denied this.

While getting a Fiat deal done is a key part of Chrysler’s historic final day, bondholders still hold the key.

“I think there is reasonable optimism that (a deal between Fiat and Chrysler) can be closed with an announcement perhaps even by President Obama today,” Italian Industry Minister Claudio Scajola told Italian television on Thursday.

Chrysler, owned by Cerberus Capital Management LP, is among the world car industry’s weakest players, but earlier President Obama said concessions by Chrysler’s unions and its major bank lenders had made him more hopeful than a month ago that the carmaker could be made viable.

The White House has set a series of aggressive targets for Chrysler in order to justify another US$6 billion in investment on top of Us$4 billion in emergency loans the government has extended since the start of the year.

Putting Chrysler and Fiat together would give the combined group annual sales of some 4.16 million vehicles, making it equal with Hyundai and behind Toyota, General Motors, Volkswagen and Ford.

Fiat CEO Sergio Marchionne thinks a carmaker needs to produce at least 5.5 million cars a year to survive.

Under the terms of the proposed partnership, Fiat would get access to the US market and a minority stake in Chrysler in exchange for the technology to make small cars and access to overseas markets. No cash would change hands.

Alex

Oh well. I will miss them. I love the 300c and I used to own a PT Cruiser when they were new. I wish GM had gone first but still, better this than dragging Fiat down with them. Who knows, they might be revived one day by somebody. It worked for Rover-MG, why not Chrysler?
o

the unions have to take some of the blame for this in australia and the USA they have priced themselves out of the market.
Indy

Can’t completely blame the unions. We have an old saying, “Unions are only as strong as Management is incompetent”.
Wheelnut

O – price had nothing to do with it; if Chrysler actually built good looking quality cars instead of the the hideous 300C for example then I suspect things would be different.

Sure there were a couple of exceptions like the Challenger or even the [underpowered] Prowler however; it was simple matter of too little too late.
http://skyline The Salesman

Will this mean they will have to re do all the Dukes of Hazard series, and the move? Who will replace Bo and Luke Duke? The Mario Brothers in a Fiat 500? We all knew this bankruptcy was inevitable. GM will suffer the same fate. It should have been done sooner to reduce the amount of down time for the re structure.
Stumpy

This isn’t about going out of business at all, this is about being able to restructure their business model pay off debt at a few cents in the dollar and step away from a large part of the industrial labour entanglement they find themselves in.

With the current debt load this is the only viable way to gain a buyer/partner, dump the debt reduce all your costs and you start to look more attractive.

Fiat gain the dealer network and public good will for helping to save an icon and Chrysler get new tech and a workable modern business model and dump most of its debt and the US tax payer foots the difference of the 8 billion dollar bill.
murano

Hi guys, being under Chapter 11 doesn’t mean it will stop doing business. It means it’s protected from creditors for the time being. It will continue to make cars-fuglier cars!!!
max

Whats going to change here, the unions are going to be a major stakeholder, fiat a partner..suspect things will only get worse.
Phil C.

max Says: Whats going to change here, the unions are going to be a major stakeholder, fiat a partner..suspect things will only get worse.

You need to understand the difference between equity stock and voting stock. Completely different. Fiat and the major creditors will be in control.

Why blame just the unions? Management led them down this path with the vehicles built.

As a comparison, the unpaid retirement monies owed to the retired workers. How about you work 40 years and are then asked to give up all your super which you effectively took a 9% pay cut to get?
Tom

Not quite Stumpy, its a bit more complicated than that. Under chapter 11 the bankruptcy judge is responsible for settling disputes between all involved parties including unions, debtors and creditors. Now in Chryslers case, a large part of the debt is held by default secure creditors. As a result, they have an agreement with Chrysler that in the case of a default (bankruptcy) they get their investment back in full. Thats a legally binding contract that Chrysler and the investors signed when they invested in Chrysler. Secondly a large portion of that Chrysler debt is held by secured investors, meaning that their investment is secured by physical assets such as manufacturing plants and property.

Currently these guys are getting offered what amounts to 5 cents to the dollar, when the UAW, which in bankruptcy court are lower down the pecking order than secured investors, are getting 50c to the dollar. Thats why the smaller investors aren’t budging, they will get more than 5c to the dollar by a bankruptcy judge. Remember the bankruptcy judge doesn’t serve Chrysler, he serves all interested parties. If he/she determines that the company can’t be reorganised in such a way as to be viable, and that liquidation will provide creditors and unions more return of what they are owed, then thats what will happen, Chapter 7 liquidation.

Obama is trying to vilify the hedge funds and smaller banks as greedy leeches, and hedge funds are usually pure evil, but remember that lots of those funds which have invested in Chrysler are part owned by mum and dad investors, who will lose large junks of their money in these investment funds if the smaller banks and hedge funds take whats been offered.

Chapter 11 bankruptcy will ensure that the bankruptcy judge treats all interested parties fairly, something that the US government hasn’t done, because a massive number of his financial backers and supporters are the unions.
Ezz

Not sure why unions are to blame when their motivation is to get the best deal for their members. Ultimate knowledge of a company’s position is not their responsibility, rather managements. If union demands were too excessive, then mngt should have made a stronger case and / or stuck by their guns.

To blame unions now is usual right wing scaremongering…John Howard, anyone? Sure you can’t place some blame with immigrants too?

****
Bret

Ezz, obviously you aren’t aware of the historical issues, involving the UAW and past US administrations then ….

Also, are YOU offering rooms to the thousands of illegal immagrants now flooding our shores as a result of KRudd’s incompetance???
Dlr1

Ezz, one of the reasons that the unions are in the firing line now is that they dont want to erode the current conditions of their members and would rather risk the total collapse of Chrysler and loss of jobs as opposed to continued employment at lower wages. Autonews reported last week that employees at the Canadian plant that build the Chrysler Voyager/Dodge Caravan ect dont want their wages cut from us$65(77CAN) to us$56(66CAN) per hour. Their failure to agree to significant concessions risks the loss of all jobs. Whats better a pay cut or a job lost?
Frontman

Ezz backing up what DLR1 said, the unions in Australia have just done a deal with Holden and allowed Holden to run one shift a day and aternate their workers week on week off. This was done with the workers interest at stake because some work is better than none.
I have never understood how a union can have the workers go on strike to ensure their entitlements when a company is close to bankruptcy? (read even AJAX Fastners Australia as well as Chrysler Canada)

In regards to the immigrants comment, again you are close to the mark. With the southern states having actively courted foreign manufacturers by giving them handouts and restriction in terms of union power etc they have effectively helped them to gain an unfair advantage.
TO QUOTE FROM AN EDITORIAL (link provided)
“Perhaps Sen. Shelby isn’t really that blind. Maybe he realizes the quality shift to American. Maybe it’s the fact that his state of Alabama has given so much to land factories from Honda, Hyundai and Mercedes Benz that he is more concerned about their continued growth than he is about the people of our country. Sen. Shelby’s disdain for “government subsidies” is very hypocritical. In the early ’90s he was the driving force behind a $253 million incentive package to Mercedes. Plus, Alabama agreed to purchase 2,500 vehicles from Mercedes. While the bridge loan the Big Three is requesting will be paid back, Alabama’s $180,000-plus per job was pure incentive. Sen. Shelby, not only are you out of touch, you are a self-serving hypocrite, who is prepared to ruin our nation because of lack of knowledge and lack of due diligence in making your opinions and decisions.”

http://theintermountain.com/page/content.detail/id/513450.html?nav=5011

THese are the battles that so many are not aware of.
Ezz

Bret…your comments about illegal immigrants lacks any form of social concscience. The recent increase has more to do with what is happening in the source countries than any Labor party policy, but feel free to accept an Alan Jones view of the world if you must. Australia’s intake is miniscule compared to many other countries, including England.

In regards to the unions, a deal is a deal and one party has or is trying to renege on that. All deals are linked to some sort of compromise that would have benefited the company over those years re performance targets, etc. I believe the unions in this case have met all of their side of the bargain but the company now wants to ignore that fact. Chrysler et al are using their poor mngt as an excuse to ignore their obligations. I only wish it was that easy for you and me when we can’t meet our obligations.

****
Bret

Alan Jones? I don’t have any access to anything he says, nor do I care. And subscribing to the Labor party excuse of GFC for everthing is totally pathetic.

Social conscience, what for, encouraging the ruthless b*stards taking money from these poor souls to ship ‘em out in unseaworthy tubs?? There’s many better ways.
Wheelnut

I don’t unnderstand why the US gummint doesn’t force the Amerian Auto Workers to take a pay cut.
That is pass a law which states that all American Auto Workers will receive a flat rate of $25p/hr and that the post-employment health benefits etc will be abolished.

Because it was the US Gummint [under George bush Snr] that forced GM Ford and Chrysler to sign a deal with the UAW which included a $10p/hr pay increase [to a minimum of $40p/hr] and the post-employment health benefits inorder to end a long running strike.

It wouldn’t be so bad if as a result of the pay increase and the extra bonuses/benefits; the quality of American cars or the efficiency of the American Auto Worker had improved…. but they haven’t – not enough to justify the $40p/hr

Therefore; the UAW should have their pay cut back to soething more realistic more of a reflection as to the [quality of] work they do etc
http://911GT4 Stumpy

I wasn\’t trying for detail.

Just to state that it is far from the end for Chrysler.

It could still all end in tears yet, even if the hurdles involving creditors are cleared.

The perception of weakness could sink Chrysler in the eyes of the consumer, just as easily as any debt owed.

The huge complication in all this is the multiple levels of state involvement and funding across many parties involved.

Some of the creditors/banks have already had a bite of the public money and it could be said that they are opening their mouths for another bite at the tax payers expense.

The moment the state got involved in the running funding of so many businesses, nothing was ever going to be easy to resolve.

I hope that the worker keep there jobs and that in the future i can go out and buy a car with a Mopar soul even if it has an Italian heart.
ridwanzero

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