Bankrupt Chrysler seals Fiat deal
BY RON HAMMERTON | 1st May 2009
Fiat has agreed to take an initial 20 per cent stake in Chrysler after the embattled American company failed to win over major lenders with its proposed restructuring plan by last night’s government-imposed deadline.
The alliance has won the support of the US government, which has agreed to provide up to $8 billion ($A11 billion) in loans. Once the loans are repaid, Fiat will be allowed to take a majority shareholding. The financing will comprise $3.5 billion ($A4.8 billion) in debtor-in-possession (DIP) financing and up to $4.5 billion ($6.2 billion) in exit financing.
US president Barack Obama said the alliance had a strong chance of success, and he hailed the move as a critical step in saving 30,000 jobs at Chrysler and hundreds of thousands more at dealerships and suppliers.
Chrysler chairman and CEO Bob Nardelli announced that he would quit Chrysler and return to current owner Cerberus Capital once the new Fiat-Chrysler company was locked in after the Chapter 11 proceedings.
He said the new partnership would transform the organisation into a vibrant new company with a wealth of strategic advantages.
“Benefits to the new company include access to exciting products that complement our current portfolio, technology cooperation and stronger global distribution." Chrysler filed for bankruptcy in New York, and a hearing is set for Friday.
The filing means Chrysler can be protected from debtor actions until it can get its house in order – including the sale of major Chrysler assets to the newly-created company – as swiftly as possible.
The clean-up is expected to take between 30 and 60 days, and during that time, Chrysler will switch its dealers from its own Chrysler Financial to GMAC Financial Services.
Also, it is expected to announce unspecified cuts in dealer numbers.
Mr Nardelli said that although total agreement was not possible with lenders, he was grateful for the sacrifices made by many of Chrysler’s stakeholders to reach agreement with Fiat.
These included unions in the US and Canada, who agreed to exchange debt for Chrysler equity for the union-run health-care funds.
“My number one priority has been to preserve Chrysler and the thousands of people who depend on its success,” Mr Nardelli said.
“While I am excited about the creation of the global alliance, I am personally disappointed that today Chrysler has filed for Chapter 11. This was not my first choice." During the restructuring process, the government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of “business as usual.” When the transaction is completed, the union-run Voluntary Employee Beneficiary Association (VEBA), will own 55 per cent of the new company and the US and Canadian governments will own proportionate shares of a 10 per cent stake.
Fiat will initially hold a 20 percent ownership stake in Chrysler. Fiat will have the right to increase its ownership stake an additional 15 per cent in three increments as it meets the following criteria: five per cent for bringing a 40mpg vehicle platform to Chrysler to be produced in the US five per cent for providing a fuel-efficient engine family to be produced in the US for use in Chrysler vehicles and five per cent for providing Chrysler access to its vast global distribution network to facilitate the export of Chrysler vehicles.
Fiat cannot become a majority owner until after all US government loans have been completely repaid.
As a part of the restructuring, most manufacturing operations will be temporarily idled from Monday, with normal production schedules to resume when the transaction is completed, which is anticipated within 30 to 60 days.
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