What does Chrysler's filing mean for GM, suppliers

Sending shocks through the auto industry and ripples beyond, Chrysler on Thursday filed for bankruptcy-court protection and began shutting most operations until it emerges from bankruptcy.

While the shutdown was to begin Monday, some suppliers immediately halted shipments, closing several plants already.

The automaker was done in by its emphasis on trucks and big cars as 2008's fuel prices sent buyers scurrying for smaller vehicles, and by the credit squeeze and recession that have flattened new car sales around the globe.

That brought Chrysler — smallest and most vulnerable of the Detroit 3 — to its knees, begging for emergency federal loans. President Obama took a hard line, refusing any more taxpayer money unless Chrysler could show it was likely to survive.

Close, but not quite. The automaker, and Treasury officials who had been negotiating on its behalf with holdouts among the creditors, had to throw in the towel.

What happens to Chrysler could determine how faltering General Motors is treated; whether suppliers can stay in business and furnish parts to other makers; and whether a sour economy can swallow tens of thousands of newly unemployed when Chrysler closes dealerships and idles plants — wrecking businesses as diverse as diners and boat sellers whose customers built or sold cars.

Obama and Chrysler say the bankruptcy filing is needed to deal with issues such as the company's debt. They say a new Chrysler will emerge in 30 to 60 days, resurrected as a smaller, leaner, debt-free automaker holding fresh concessions on labor costs and newly partnered with the automaking unit of Italian industrial giant Fiat. Remaining, unprofitable assets will be left behind in court for liquidation.

But even a temporary disruption will be hard on auto suppliers and dealers already under extreme pressure. And no one knows if people will buy cars from Chrysler in bankruptcy, even though the government now backs the warranties.

"I think it will be a test of this premise that you can have a controlled bankruptcy at an automaker," says Gregg Lemos-Stein, a credit analyst at Standard & Poor's.

And Chrysler will emerge with new leaders. CEO Bob Nardelli, who left as Home Depot CEO in 2007, said he will step aside once the company emerges from bankruptcy. A new CEO will be picked by the company's new board of directors, which will include members picked by the United Auto Workers and the U.S. and Canadian governments, which are financing the bankruptcy and providing aid after Chrysler emerges.

Nardelli says he's leaving without a severance package.

"I just pick up my pencil and walk out the door," he says. But he will continue to work for private-equity firm Cerberus Capital Management, Chrysler's now-to-be-former owner, as an adviser.

All eyes on Chrysler

General Motors, for one, will be watching closely to see how Chrysler's bankruptcy plays out. GM may face the same fate in just a month, when its deadline from the government approaches.

But all automakers have an interest, because they share a supply chain. If the idle Chrysler cuts suppliers' volumes so much they can't stay in business, that could halt production lines at Toyota, Honda and Ford.

Ford said Thursday it is closely monitoring the situation. "Our industry is highly interdependent, and the health of the supply base and dealer network is critical for all automakers," Ford said.

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