Chrysler is filing for Chapter 11 bankruptcy protection, President Barack Obama confirmed Thursday. The decision has been made at the behest of the President, after Chrysler failed to meet his administration’s deadline for turning itself into a viable business.
Announcing the decision, Obama – who owned a HEMI-powered V8 Chrysler 300C before taking office – said: “The necessary steps have been taken to give one of America’s most-storied companies a new lease on life.”
Obama also announced that the federal government will give additional aid to GMAC so that it can take over lending to Chrysler’s customers and dealers from Chrysler Financial, which the government has said is no longer viable. The Canadian government will also provide financial aid in return for a two per cent stake in the restructured company.
The president also stressed that Chrysler will continue to operate as normal while it is under Chapter 11 bankruptcy protection, with no imminent job or dealership cuts planned until the restructuring is complete.
Chrysler will use the bankruptcy protection to restructure, and to this end is expected to announce a tie-in with Fiat imminently. During Obama’s speech, he said terms had now been agreed in principle with Fiat for the deal to go ahead.
The decision to enter Chapter 11 bankruptcy protection is expected to cost the US government an additional $3.5 billion to keep the company running while its affairs are sorted out. The government has also pledged to provide up to $4.7 billion in aid for the restructured company.
Chrysler’s best assets are expected to be sold to a new entity that will have an ownership structure agreed with Fiat, while its debtors will be given U.S. treasury compensation. The company is expected to remain in Chapter 11 bankruptcy protection for 30-60 days.
Inside sources say Fiat will now become a 20 percent owner of Chrysler, a union retiree health-care trust fund will hold 55 percent, and the rest of the company will stay in the government’s hands. Fiat’s share holding will increase will increase up to 35 percent as it hits certain targets, including bringing new, low emission cars to the US.
Fiat and the new board of directors of the company will pick a chief executive officer and chairman. Current Chrysler CEO Bob Nardelli will step down immediately after the formal application for Chapter 11 bankruptcy protection is submitted. Fiat’s chief, Sergio Marchionne, has already said he would be willing to run Chrysler if asked.
In announcing his decision to step down, Nardelli confirmed he will return to Cerberus Capital Management LP as an advisor.
“Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat,” said Nardelli. “I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance.”Source: Autocar