Obama plots path for Chrysler’s future

Obama plots path for Chrysler’s future
By John Reed in London and Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: April 30 2009 14:12 | Last updated: April 30 2009 18:19
http://www.ft.com/cms/s/0/76ccd92c-3588-11de-a997-00144feabdc0.html


President Barack Obama said on Thursday that Chrysler would be filing for Chapter 11 bankruptcy protection and confirmed a partnership with Italy’s Fiat aimed at giving a new lease on life to what he called “one of America’s most storied automakers.”

The announcement came after dissenting creditors failed to fall in line with a government-brokered deal with big banks to cut Chrysler’s $6.9bn secured debt by more than two-thirds. Mr Obama attributed the failure of an out-of-court restructuring to “a small group of speculators.”

In a midday address, Mr Obama sought to assure carbuyers that their warranties on Chrysler cars had US federal government backing, and he announced a series of other measures to support the beleaguered domestic American car industry.

Fiat said that its partnership would see the sale of “substantially all” of Chrysler’s assets to a new company under provisions of the US bankruptcy code allowing companies in creditor protection to split their operations into more and less viable parts.

The Italian carmaker said Chrysler would ask a bankruptcy court in New York on Thursday to approve the sale of its business to a new company, also to be called Chrysler.

Pending approval of the deal, the current Chrysler would continue its normal business operations. The company would receive US Treasury and Canadian government financing and “continue normal business” while awaiting the approval.

Fiat is expected to take a 20 per cent initial stake in Chrysler, to rise later to 35 per cent. “As part of the agreement, every dollar of taxpayer money will be repaid before Fiat can take a majority stake,” Mr Obama said.

Bob Nardelli, the chairman and chief executive of Chrysler, will step down to be replaced by a new board agreed by the government and Fiat.

Sergio Marchionne, Fiat’s chief executive, said the deal represented “a constructive and important solution to the problems that have plagued not just Chrysler in recent years, but the global automotive industry as a whole.”

He said that Fiat looked forward to “delivering on the vast potential this alliance holds.” Fiat entered discussions on the alliance nearly a year ago.

Mr Obama gave no details on the government’s desired timetable for what his task force on the auto industry had previously described as a “surgical” bankruptcy filing aimed at giving Chrysler the shortest possible trip through the courts.

“The process will be quick, it will be efficient,” he said. “It’s designed to deal with the last few holdouts, and it will be controlled.”

However, analysts say Chrysler’s efforts to emerge from Chapter 11 protection quickly could be bogged down by legal challenges from dissenting creditors, dealers, and others.

Mr Obama described the US car industry as “pillar of our industrial economy” that had “helped to make the 20th century an American century.”

He praised efforts to turn around Detroit’s smallest carmaker by Fiat, Chrysler, its chief executive Bob Nardelli, the United Auto Workers Union, his own automotive task force, and banks led by JPMorgan, who agreed a deal this week to restructure the majority of Chrysler’s secured debt.

Mr Obama said he was naming Ed Montgomery as “director of recovery” for US areas hit by the decline in carmaking, and that Mr Montgomery would be travelling soon for meetings in Michigan.

Mr Obama said that Chrysler Financial, the carmaker’s loans arm, would need a constant stream of taxpayer money, and that GMAC had agreed to finance its vehicles. Fiat said the new arrangements would take effect from the beginning of May.

The spotlight in the controversial government-supervised restructuring of the US auto industry now turns to General Motors, which has until the end of May to follow Chrysler in reaching an agreement with workers and debtholders to cut costs.

That process is also turning acrimonious with some GM bondholders criticising the company’s plan that offers them 10 per cent of the new company’s equity in return for cancelling $27bn of unsecured loans.

Chrysler timeline
1925: Walter Chrysler, a former railway mechanic and head of General Motors’ Buick division, forms Chrysler from the ashes of ailing Maxwell Motor.

1979: US government agrees to guarantee $1.5bn in Chrysler debt to keep the carmaker out of bankruptcy

1983: Last of government-guaranteed loans paid off as new models gain popularity.

1984: Launch of pioneering Dodge and Plymouth minivans.

1987: Chrysler acquires American Motors, maker of Jeep

1998: Germany’s Daimler-Benz acquires Chrysler, changing its own name to DaimlerChrysler

2001: Plymouth brand discontinued after 73 years

2007: Daimler sells 80 per cent stake in Chrysler to Cerberus Capital Management. New management installed under former Home Depot chief executive Bob Nardelli

2008: A series of plant closures and employee buy-outs as sales and market share fall. Four models discontinued

April 2009: Chrysler files for bankruptcy protection. Workforce has shrunk by more than 30,000 since Cerberus takeover