Chrysler declaring bankruptcy, seals deal with Fiat (Lead)May 1st, 2009 - 12:09 am ICT by IANS
Washington, April 30 (DPA) The long ailing US carmaker Chrysler was to enter bankruptcy protection Thursday after last-ditch efforts to get an out-of-court agreement with its creditors collapsed, President Barack Obama announced.
But Obama said the company had also finalised an alliance with Italian carmaker Fiat, as part of a broad deal that will be presented in the Chapter 11 bankruptcy that will be filed in New York.
“This is not a sign of weakness,” Obama said in a statement at the White House. “I have every confidence that Chrysler will emerge from this process stronger and more competitive.”
Chrysler becomes the first of Detroit’s “Big Three” carmakers to declare bankruptcy because of a sharp plunge in sales during the ongoing recession, and could provide some clues to rival General Motors Corp’s fate in the coming month.
Senior administration officials insisted Chrysler’s would be a quick, “surgical” bankruptcy - between 30 and 60 days - that would pave the way for the alliance with Fiat. More than 70 percent of Chrysler’s creditors were already on board.
Chief executive Bob Nardelli will oversee the bankruptcy but will be out of a job once the process is completed, as part of a major shake-up of the company’s executive board.
“It’s a bittersweet conclusion,” Nardelli told US broadcaster CNBC. “Our goal is to get in and out (of bankruptcy) as quickly as we can and get the Fiat deal from signing to closing.”
Obama announced the bankruptcy as his Thursday ultimatum ran out for Chrysler, the third-largest US carmaker, to either prove its viability or lose some $4.5 billion in emergency loans.
GM, which has also taken a $15.5-billion federal bail-out, has a separate deadline of June 1 to restructure its own operations. The US industry leader is still going through similar talks with its creditors to forego some $29 billion in debt.
Chrysler will get up to $3.5 billion in loans from the government during the bankruptcy process and another $4.5 billion as it emerges on the other side, a senior administration official said. The Chapter 11 filing allows the company to get court protection from its creditors.
Government-brokered talks aimed at saving the struggling carmaker failed late Wednesday as a group of smaller hedge fund lenders refused to accept an offer of some cash in exchange for larger amounts of debt, making a bankruptcy all but certain.
Chrysler’s larger bank creditors including JP Morgan Chase & Co and Citigroup Inc had tentatively agreed to an offer of 2 billion dollars in cash in exchange for wiping out 6.9 billion dollars in debt.
Obama chastised the smaller group of lenders that had forced Chrysler to go the path of bankruptcy, even after the government sweetened the deal to 2.25 billion dollars.
“I don’t stand with those who held out when everybody else is making sacrifices,” Obama said.
The last-minute negotiations were designed to pave the way for the alliance with Fiat, another key condition set out by the Obama administration if Chrysler is to survive. Fiat has said it is prepared to take a stake in the company, but without the heavy debt burden.
Chrysler’s workers have also agreed to sacrifices. The top labour union, the United Auto Workers, on Wednesday approved a new contract that cut salaries and help keep the carmaker in business. White House officials said they didn’t expect further job cuts during bankruptcy.
Assuming Chrysler is able to survive, Fiat could potentially take a 20-percent stake in Chrysler, while a union retiree health care trust fund would own 55 percent and the government would control the rest.
US carmakers have suffered from a nearly 40-percent plunge in domestic car sales since October, as a deep recession has gripped the country. But their troubles have been compounded by a failure to streamline their operations over the last decade and match the greener models produced by foreign competitors.
Obama said he was confident US carmakers would survive the crisis and urged US consumers not to abandon the industry.
“If you are considering buying a car I hope it will be an American car,” Obama said.
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Tags: administration officials, bankruptcy protection, barack obama, bob nardelli, broadcaster, carmakers, chapter 11 bankruptcy, cnbc, creditors, declaring bankruptcy, emergency loans, general motors corp, industry leader, italian carmaker, last ditch, plunge, recession, senior administration, ultimatum, viability