President Barack Obama announced plans on April 30 to save troubled automaker Chrysler through a government-backed bankruptcy and partnership with Italy's Fiat. The aim is for Chrysler to emerge from bankruptcy protection within 30 to 60 days by selling the automaker's principal assets to a new company.
The ailing auto giant would get a total of $10.4 billion in funding from the U.S. and Canadian governments to support its operations during the proceedings.
Chrysler said most of its plants will be "temporarily" idled until the transaction is complete.
Fiat will initially take a 20% stake which would then rise to 35% and could eventually reach 51%. Fiat would pay nothing, but would provide access for Chrysler to its technology, notably for smaller, more economical vehicles.
Obama said the new alliance and bankruptcy reorganization were among the "necessary steps" taken "to give one of America's most storied automakers, Chrysler, a new lease on life."
"I am pleased to announce that Chrysler and Fiat have formed a partnership that has a strong chance of success," Obama said. "It's a partnership that will save more than 30,000 jobs in Chrysler and tens of thousands of jobs to suppliers, dealers, and other businesses that rely on this company."
Bob Nardelli will step down as chairman and CEO of Chrysler once the alliance with Fiat is complete and Chrysler emerges from bankruptcy protection. "From many great parts, we begin to build a vibrant new company with less debt, a stronger balance sheet, richer product portfolio, supported by a well-positioned finance company," Nardelli said.
The CEO of Fiat Group, Sergio Marchionne, said that bringing together Fiat and Chrysler "will create a powerful new automotive company, while helping preserve jobs and a manufacturing industry that is critically important to the U.S. and Canadian economies."
The U.S. Treasury would hold 8% of the equity of the new Chrysler under the plan and have a right to select four independent directors, but "will not play a role in the governance or management of the company," according to a White House statement.
The reorganization envisions no further job cut or plant closings, and could allow Chrysler to grow as it expands globally under the Fiat partnership and gains new technology for smaller, fuel-efficient cars.
The filing will place the struggling number-three U.S .automaker in the hands of a bankruptcy judge and analysts have warned that a swift emergence could be blocked should some stakeholders mount objections. But an administration official said that with the vast majority of stakeholders agreeing to a deal, "our judgment is that no judge is going to override that kind of support."
The news came after the United Auto Workers (UAW) union members approved an agreement to accept stock in place of cash obligations to the union's retiree funds.
But the automaker's other creditors failed to approve a tentative deal to restructure some $6.9 billion in debt.
Obama noted that under the agreement, Fiat would have an incentive to repay the U.S. loans. The Italian firm would not be able to boost its holding to a majority stake until the government is repaid.
The new plan also calls for an end to Chrysler Financial, which will be merged into GMAC -- the former financial arm of General Motors, which is now majority controlled by Cerberus, the private equity owner of Chrysler.
Cerberus has agreed to waive its debt and forfeit its entire equity stake in Chrysler to the new Chrysler alliance.
Copyright Agence France-Presse, 2009