Is Chrysler's bankruptcy now official?

[hemigeno]

Apr 30, 10:40 AM (ET)

By STEPHEN MANNING and TOM KRISHER

WASHINGTON (AP) - Chrysler will file for bankruptcy after talks with a small group of creditors crumbled just a day before a government deadline for the automaker to come up with a restructuring plan, two administration officials said Thursday.

The Obama administration had long hoped to stave off bankruptcy for Chrysler LLC, but it became clear that a holdout group wouldn't budge on proposals to reduce Chrysler's $6.9 billion in secured debt, according to the officials, who spoke on condition of anonymity because the filing plans are not public. Clearing those debts was a needed step for Chrysler restructure by the Thursday night deadline.

Bankruptcy doesn't mean the nation's third largest automaker will shut down. And the privately-held Chrysler is expected to sign a partnership agreement with the Italian company Fiat as early as Thursday as part of its restructuring plan. A Chapter 11 bankruptcy filing would allow a judge to decide how much the company's creditors would get.

President Barack Obama is expected to discuss the nation's auto sector at noon Eastern.


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 United Auto Workers ratified a cost-cutting pact Wednesday night. Treasury reached a deal earlier this week with four banks that hold the majority of Chrsyler's debt in return for $2 billion in cash.

But the administration said about 40 hedge funds that hold roughly 30 percent of that debt also needed to sign on for the deal to go through. Those creditors said the proposal was unfair and were holding out for a better deal.

"While the administration was willing to give the holdout creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler's future success," said one of the administration officials.

A third 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.

When it files for bankruptcy, Chrysler would continue operating and Fiat would still sign on as a partner on Thursday, the people said. The government already has promised to back Chrysler's warranties in an effort to allay customers' fears that the automaker wouldn't be around to honor them.

President Barack 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. The company has borrowed $4 billion from the federal government and needs billions more to keep operating. President Obama said Wednesday night while the lender talks were still ongoing that he was "very hopeful" that deals can be worked out to keep Chrysler LLC a viable automaker, and more hopeful than he was a month ago that the company will stay in business.

The UAW agreement, which would take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler's U.S. facilities and to share key technology with Chrysler.

Meanwhile, the Fiat partnership means Chrysler CEO Robert Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is completed, Chrysler would be run by a new board appointed by the government and Fiat. The new board, Nardelli wrote, would pick a CEO "with Fiat's concurrence."

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Obama said Wednesday that Fiat's management "has actually done a good job transforming their industry."

[Ghoste]

So essentially, the people who make the big money will continue to make the big money while a whole bunch of suppliers and vendors take it up the pooper, tens of thousnads more will lose their jobs and a once great auto manufacturer will be broken up into little pieces and sold off.

[Todd Wilson]

According to the tv about 5 minutes before I posted this message the whole deal is on hold as some problems have come up.


Todd

[TruckDriver]

That okay, everyone here wants to be driving Fords in the future, as there going to be the only true original US car maker soon. 

[skip68]

Ford is the one that can ride the storm out.  They are in the best shape.   

[Todd Wilson]

Ford is the one that can ride the storm out.  They are in the best shape.   

I dont think they are in any better shape then the other 2. They got lucky and secured some loans a year or so ago which has given the boost to get thru this economic problems.

The same thing will happen with GM here before too long.  The UAW will own a majority of the shares of 2 of the big 3 before its overwith.


Theres got to be more going on under the table then we as the public know about or will know about. I have a feeling there will be some lining of pockets out of all this.


Todd

[Johnny SixPack]

Yep, it's official.

The President just held a press conference regarding the proceedings.

Sounded like Fiat will be able to assume a majority stake in Chrysler once they've met certain criteria.

Also sounded like the President felt it was due to the greed of some of the hedge funds that bankruptcy was the final solution.

There was also talk about people being encouraged to trade in 'older' vehicles for special discounts. 

Happy it's still just an option. 


Johnny

[hemigeno]

Also sounded like the President felt it was due to the greed of some of the hedge funds that bankruptcy was the final solution.

"Greed" is defined as not wanting to take roughly 30 cents on the dollar for their investment?   What outrage would there be if everyone's boss decided that you only needed 40% of your paycheck and he needed to keep the rest to stave off bankruptcy... Oh wait- Uncle Sam does that anyway...

I suppose through the tax-money-goggles apparently being used in WashDC these days, that kind of loss is still considered a good investment.

[Johnny SixPack]

Also sounded like the President felt it was due to the greed of some of the hedge funds that bankruptcy was the final solution.

"Greed" is defined as not wanting to take roughly 30 cents on the dollar for their investment?   What outrage would there be if everyone's boss decided that you only needed 40% of your paycheck and he needed to keep the rest to stave off bankruptcy... Oh wait- Uncle Sam does that anyway...

I suppose through the tax-money-goggles apparently being used in WashDC these days, that kind of loss is still considered a good investment.

I hear you, man.

It's a **** sandwich, and there's not enough napkins for everyone involved in this whole fiasco (and I mean from the beginnings of the GM/Chrysler bailout to this).

I completely understand that if you are owed X amount of money from someone, you expect to make X back.

I also see it from the angle of those that maybe figured that this deal was going south no matter what happened, and just wanted to walk away with something.

My query is this: Does the fact that those who wanted everything they were due repaid in full not playing along ruin it for those that would play ball?

Seems to me in the current political atmosphere that even having the illusion of greed isn't going to set well with the general public, or the possibly the courts.

Either way, the President calling you greedy can't help. 

I have no stake in this, just simply curious.

[bull]

Here's some background info on the deal from a week ago when no one apparently cared: http://www.dodgecharger.com/forum/index.php/topic,56365.0.html

[Ponch ®]

There was also talk about people being encouraged to trade in 'older' vehicles for special discounts. 

I wonder if my 08 Charger is an "older" vehicle now? I'd trade it in for a Challenger in heartbeat if the deal was tempting enough...

[GeneralLeeTESH]

It just makes me want to VOMIT.    I am shocked that they would "lower" their standards and let a European company (which builds pathetic "cry-baby cars" ) even own the word HEMI itself, etc. G&d Damit I am so f*&*^* ing pissed- I wanna start WW3 with the Italians (and I am Italian !) Next thing you know - the'll be filming "The Italian Job" in Yugo-slavia !
Our country is F%^@#ed now !

[Neal_J]

I'm pissed too - that the U.S. government is propping up a business that clearly cannot compete and blames all its problems on its customers rather than its management (or lack thereof for the better part of the last 20 years).

Chrysler production stops Monday.  Temporarily, I guess.

[nh_mopar_fan]

So essentially, the people who make the big money will continue to make the big money while a whole bunch of suppliers and vendors take it up the pooper, tens of thousnads more will lose their jobs and a once great auto manufacturer will be broken up into little pieces and sold off.

Q. What happens to Chrysler employees?

    A. The White House said it did not anticipate any reductions in white-
    or blue-collar jobs as a result of the bankruptcy. However, Chrysler
    employees who are not union members do not have any job security. The
    company can ask a judge for an immediate pay cut for its salaried
    employees, and can announce job eliminations and close offices, just as
    it can outside bankruptcy,

    Contracts covering members of the United Automobile Workers union and
    other unions will remain in force, until the company asks a judge to
    void them. U.A.W. members approved changes to their contract on
    Wednesday that presumably would mean the contract would stay in place.
    But if the company asked for contracts to be terminated and replaced
    with terms it can more readily afford, the union would have a chance to
    respond in court. Negotiations would take place before any cuts were
    imposed. This process could take months.

Q. What happens to Chrysler suppliers?

    A. The White House said supplier contracts would remain in force, and
    it has created a program to provide federal help to parts makers. But
    in bankruptcy, supplier contracts can be canceled.

    Chrysler can ask to cancel suppliers  contracts and grant business to
    new suppliers, or seek lower rates. Suppliers would have the
    opportunity to negotiate with the company, just as they would in any
    business deal.

http://dealbook.blogs.nytimes.com/2009/04/30/a-roadmap-to-a-chrysler-bankruptcy/

[Bob]

Hundreds if not thousands of American car companies have went defunct over the years. I'm sorry for the lives that will be effected if a company goes under but the strong get stronger and weak are run over.

http://en.wikipedia.org/wiki/List_of_defunct_United_States_automobile_manufacturers

[WingCharger]

Hundreds if not thousands of American car companies have went defunct over the years. I'm sorry for the lives that will be effected if a company goes under but the strong get stronger and weak are run over.

http://en.wikipedia.org/wiki/List_of_defunct_United_States_automobile_manufacturers

Yeah, but notice most of those were in the early 1900's and were extremely small?

[Bob]

Hundreds if not thousands of American car companies have went defunct over the years. I'm sorry for the lives that will be effected if a company goes under but the strong get stronger and weak are run over.

http://en.wikipedia.org/wiki/List_of_defunct_United_States_automobile_manufacturers

Yeah, but notice most of those were in the early 1900's and were extremely small?

Agree, but proves the point the strong get stronger and the weak are yesterdays news. Not one corporation is immune when the economy starts to go south. You are either prepared or sit back and say, "It can not happen to us."
The majority of the big companies who were around in the 20's, 30's, 40's and 50's are no longer here.
The circle of life or the full rotation of the economy will take it's toll. You either have enough oil to keep you candle lit or you don't. Contingency plans for most big companies are in the Bahama's.

[Ghoste]

Those companies were much smaller and most of them went under one at a time and not when the world was already in an economic turmoil.  This is different and if you only feel sorry for the poor people who are going to lose their jobs because you think it will make everything stronger well, you are missing the whole picture.  If the American auto industry vanishes as quickly as it appears it is going to, you WILL be affected as well.

[WINGMAN]

  I am a Dodge tech for over 15 years  Looks like more hard times on the way.  Might need to sell my cars    Jay.

[bull]

Well, it's official. Chrysler filed chapter 11 today: http://news.yahoo.com/s/ap/20090501/ap_on_bi_ge/us_chrysler

By TOM KRISHER and STEPHEN MANNING, AP Business Writers Tom Krisher And Stephen Manning, Ap Business Writers – 22 mins ago

DETROIT – After months of living on government loans, Chrysler finally succumbed to bankruptcy Thursday, pinning its future on a top-to-bottom reorganization and plans to build cleaner cars through an alliance with Italian automaker Fiat.

The nation's third-largest car manufacturer filed for Chapter 11 bankruptcy protection in New York after a group of creditors defied government pressure to wipe out Chrysler's debt. The company plans to emerge in as little as 30 days as a leaner, more nimble company, with Fiat potentially becoming the majority owner in the future. In return, the federal government agreed to give Chrysler up to $8 billion in additional aid and to back its warranties.

"It's a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry," President Barack Obama said from the White House.

Chrysler said it will close all its plants starting Monday and they will stay closed until the company comes out of bankruptcy. At least three Detroit-area factories sent workers home Thursday after suppliers stopped shipping parts over fears they would not be paid.

CEO Robert Nardelli announced he would step down when the bankruptcy is complete and take a post as an adviser with Cerberus Capital Management LP, which will give up its 80 percent ownership of Chrysler under the automaker's plan. Vice Chairman Tom LaSorda, who once ran the company when it was owned by the German automaker Daimler, said he would retire.

"A lot of us are scared," said Steve Grabowski, 33, who has worked at a Warren, Mich., parts stamping plant for seven years and was sent home Thursday. "We knew something like this was going to happen, but we didn't think it would be so soon."

Chrysler's bankruptcy filing is the latest step in a drastic reordering of the American auto industry, which has been crushed by higher fuel prices, the recession and customer tastes that are moving away from the gas-guzzling SUVs that were once big money makers.

Lee Iacocca, the retired chairman and CEO who led Chrysler through a government bailout in the late 1970s, said it was a sad day.

"It pains me to see my old company, which has meant so much to America, on the ropes," he said in a written statement. "But Chrysler has been in trouble before, and we got through it, and I believe they can do it again."

The government has sunk about $25 billion in aid into Chrysler and rival General Motors Corp.

GM faces its own day of reckoning on June 1, a date the administration has set for it to come up with its own restructuring plan. GM has announced thousands of job cuts, plans to idle factories for weeks this summer and has even offered the federal government a majority stake in the company as it races to meet the deadline.

Like at Chrysler, debt may be the stumbling block. GM has asked its unsecured bondholders to exchange $27 billion of debt for a 10 percent stake in the automaker. The creditors balked, saying that would leave them with just pennies on the dollar and they deserve a majority stake if they give up their claims.

When Chrysler emerges from bankruptcy, the United Auto Workers union will own 55 percent of the automaker and the U.S. government will own 8 percent. The Canadian and Ontario governments, which are also contributing financing, would share a 2 percent stake.

Under the deal, Chrysler would gain access to Fiat's expertise in small, fuel-efficient vehicles. The U.S. automaker eventually wants to build cars that could get up to 40 mpg, far more economical than its current fleet focused on minivans, Jeep SUVs and the Dodge Ram pickup.

In exchange, Fiat would initially get 20 percent of the company, but its share could rise to 35 percent if certain benchmarks are met, and Fiat said Thursday it could get an additional 16 percent by 2016 if Chrysler's U.S. government loans are fully repaid. Fiat would also get access to the North American market through Chrysler factories and dealerships.

Fiat CEO Sergio Marchionne said he planned to spend time meeting Chrysler employees and touring its plants over the next few weeks.

He said Fiat was preparing for Chrysler to "re-emerge quickly as a reliable and competitive automaker." Fiat also plans to reintroduce brands like Alfa Romeo in North American markets.

First, though, bankruptcy court Judge Arthur Gonzalez will have to sort out the issue of Chrysler's creditors, who hold $6.9 billion of the company's debt. The company's first hearing is set for Friday.

The Treasury Department's auto task force had been racing for the past week to clear the hurdles that led the government to reject Chrysler's initial survival plan one month ago. Along with the Fiat deal, Chrysler adopted a cost-cutting pact with the UAW on Wednesday.

Four of the largest banks holding 70 percent of Chrysler's debt agreed this week to a deal that would give them $2 billion. But a collection of hedge funds refused to budge, saying the deal was unfair and would only return a small fraction of their holdings.

When the hedge funds refused a sweetened offer Wednesday, Chrysler and the government resorted to bankruptcy.

Obama chastised the funds for seeking an "unjustified taxpayer-funded bailout."

One lender, OppenheimerFunds Inc., said it rejected the government offer because it "unfairly asked our fund shareholders to make financial sacrifices greater than the sacrifices being made by unsecured creditors."

Later Thursday, one of the hedge funds that had been a holdout issued a statement agreeing to the offer.

"We believe that this is in the best interests of all Chrysler stakeholders, and our own investors and partners," said the statement from Perella Weinberg Partners. The fund said it was working "to encourage broad participation in the settlement."

The White House said Chrysler could comes out of "surgical" bankruptcy in 30 to 60 days. Under normal circumstances, it would be difficult to complete such a large bankruptcy so quickly.

But John Pottow, a University of Michigan professor who specializes in bankruptcy, said the government's level of involvement is much greater than a typical corporate bankruptcy.

"If you have the president of the United States who wants something to happen, I think anything's possible in bankruptcy protection," he said.

The Fiat deal and bankruptcy cap a disastrous time for Chrysler.

The Auburn Hills, Mich.-based company lost $8 billion last year and its sales through March were down 46 percent compared with the same period last year, leading some auto industry analysts to question whether Chrysler can survive even in bankruptcy.

But company executives told reporters Thursday that Chrysler vehicles with Fiat's fuel-efficient technology should reach showrooms in 18 months.

Vice Chairman Jim Press said Chrysler has cut expenses to operate profitably at a lower sales volume, and he said it would be able to take advantage of Fiat's distribution network to sell more vehicles globally.

Also, the company has new products coming out such as the new Jeep Grand Cherokee, which debuts in early 2011.

Press said the company predicts that small-car sales will rise dramatically around the time the Fiat products hit the U.S. market.

"The real volume pickup opportunity for smaller cars is going to start to ramp up about two years from now," he said.

Despite the turmoil with Chrysler and GM's looming deadline, Obama urged consumers to keep buying cars.

"If you are considering buying a car, I hope it will be an American car," he said.

[runningman]

Well just got the word, we are gonna shut down here at the 3.7 plant for four to six weeks or longer.  It's kinda scary been here close to 15 years and I think I have only had two or three weeks off due to production schedules.  Hopefully everything will work out okay.

[41husk]

Good luck to all who feed there families with the Mopar brands.  I have been brand loyal to the Chrysler label for over 20 years, and sincerly hope it never goes away.

[oldcarnut]

I work at a Tier a 1 & 2 Chrysler supplier and we will be getting more off time with ya on top of what we already been getting. .   Lets hope all get their act togethor.

[Neal_J]

There's a great article about the inept management of the automobile industry in the current New Yorker magazie. 

This US auto industry is toast.   

[runningman]

Good luck to all who feed there families with the Mopar brands.  I have been brand loyal to the Chrysler label for over 20 years, and sincerly hope it never goes away.

Thanks! 

I work at a Tier a 1 & 2 Chrysler supplier and we will be getting more off time with ya on top of what we already been getting. .   Lets hope all get their act togethor.

Yeah, I have been hearing about a lot of suppliers having like three months off.  That sucks, the quicker we get back to building vehicles the better......for many