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Chrysler driven into bankruptcy

Global Arab Network - - Maha Karim

Friday, 01 May 2009 01:48

Chrysler is to declare bankruptcy after last ditch talks with creditors failed, government officials have said. It reportedly managed to secure deals with unions and with Italian automaker Fiat. However, there were reports some of its creditors - several hedge funds - were holding out for a better deal from the US government.

President Barack Obama has what he needs to restructure Chrysler. With banks holding 70pc of Chrysler's secured debt agreeing to the US Treasury's 30 cents on the dollar offer, the reorganisation can move ahead.

Barack Obama, the US president, is to hold a news conference in Washington DC on the struggling US auto industry at noon local time (16:00 GMT) on Thursday.

Chrysler will continue to operate and still plans to sign the agreement with Fiat, officials said.

The bankruptcy projection would give the firm time to rearrange its finances under court supervision and offer it protection from creditors.

The filing for bankruptcy protection will lead to the forming of a new corporate entity.

Details of the new Chrysler include:
Chrysler and Fiat logos
Fiat's technology will enable Chrysler to build fuel efficient cars

• Fiat will take a 20% stake, with the possibility of it rising to 35% if performance targets are met. It could reach 51% by 2016 if Chrysler's government loans are fully repaid

• The Treasury will have an 8% stake, a union-run trust fund VEBA will take a 55% stake, and the governments of Canada and Ontario will gain a combined 2% stake

• Current owner Cerberus will forfeit its 80.1% stake

• Daimler will give up its remaining 19.9% stake in Chrysler

• Chrysler bondholders will receive $2bn (£1.35bn) in cash in exchange for forgiving their $6.9bn debt

• The new company will be run by a nine-person board, with six picked by the government and three by Fiat. The board will pick a new chief executive. (bbc)

Chrysler is one of the so-called Big Three auto firms in the US alongside General Motors (GM) and Ford.

Both Chrysler and GM had asked for a combined $21.6bn in financial aid from the US government on top of the $17.4bn in emergency loans approved in December.

GM still has another 30 days to develop further restructuring plans while Ford has said it has enough money to survive the economic downturn without government aid.

GM has already announced earlier this month that it was to slash a further 21,000 jobs and close plants and dealerships, while Rick Wagoner, its chief executive, was ousted by the Obama administration in March.

All three auto firms have faced criticism for failing to restructure their firms adequately as the US slid into recession and for not responding to consumer demand for more fuel efficient vehicles.(aljazeera)

Chrysler chief executive Robert Nardelli said he will step down after the company emerges from bankruptcy.

Mr Nardelli has been in charge at Chrysler since 2007 but said he felt it would be an appropriate time to leave after bankruptcy.

Global Arab Network

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