Chrysler bankruptcy filing sets risky play in action
DETROIT -- Chrysler's move into bankruptcy court is a last-ditch attempt by the beleaguered company to get its house in order before partnering with Italian automaker Fiat.
It's a move that comes with a lot of risk. The company and President Obama promise the process will be quick and won't affect normal operations. But just a few hours after filing for Chapter 11, plants began shutting down as suppliers refused to deliver parts. The automaker has decided to shut down most production for 30 to 60 days.
The events were orchestrated by the U.S. government, which had given Chrysler until Thursday to renegotiate its union contracts, cut its debt load and find a company with which to partner for greater scale to survive in the marketplace.
The carmaker accomplished two of those goals: It hammered out a proposed partnership deal with Italian automaker Fiat and negotiated labor contract concessions that were approved by its Canadian and U.S. labor forces.
Even so, by late Wednesday, Chrysler and the government's auto task force had failed to get all of its bondholders to agree to forgive about two-thirds the $6.9 billion Chrysler owed them.
The car company survived a near-death experience with government help in the 1980s. It skimmed past bankruptcy by winning $1.5 billion in government loan guarantees, and rebounded in a few years — paying back the loans early — then produced vehicles that started two major car trends: minivans and SUVs.
The automaker said it will continue selling cars and paying dealers as usual while in bankruptcy court and hopes to create a new company to emerge in 30 to 60 days, an ambitious time frame for a bankruptcy of this size. Chrysler's production shutdown will help further cut its inventory on dealer lots, CEO Robert Nardelli said, but also will cut off income for already ailing parts suppliers.
Obama put a positive spin on the news, saying that although he would have preferred to keep Chrysler out of bankruptcy court, it will emerge a healthier company.
"This is not a sign of weakness, but rather one more step on a clearly charted path to Chrysler's revival," Obama said. "Because of the fact that the UAW and many of the banks, the biggest stakeholders in this whole process, have already aligned, have already agreed, this process will be quick. It will be efficient."
Obama scolded the holdouts who wouldn't join the four big banks holding two-thirds of the debt in taking the U.S. Treasury's offer of $2.25 billion for the $6.9 billion owed by Chrysler — and blamed them for pushing the automaker into bankruptcy.
Shortly after Obama's speech, Nardelli said he would step aside after Chrysler emerges from bankruptcy.
Once Chrysler exits bankruptcy court restructuring, it can close the deal with Fiat. The industrial conglomerate has promised to help Chrysler distribute cars outside North America, giving the automaker access to more markets. It will also build a new fuel-efficient engine in a U.S. factory, and will build a 40-miles-per-gallon car in the U.S.