President Barack Obama announced today in a press conference that Chrysler LLC will file for Chapter 11 bankruptcy protection. Obama also announced that Chrysler and Fiat SpA have formed a partnership.
Under the terms of the bankruptcy, to be filed today in New York, Chrysler, along with the UAW, Fiat and a majority of lenders will ask a judge to force a swap of $6.9 billion in debt for $2 billion in cash.
The bankruptcy is backed by up to $3.5 billion in new government financing designed to allow a Chrysler-Fiat partnership to emerge from court in 30 to 60 days. Fiat’s stake will start at 20 percent and the company could become majority owner once the government loans are repaid. After bankruptcy, a new company will be formed that will buy the assets of Chrysler.
Key points from the president’s press conference:
- The bankruptcy is "not a sign of weakness, but rather one more step on a clearly charted path to Chrysler's revival," the president said.
- The bankruptcy will allow the new company to consolidate dealers, brands, product lines. Bankruptcy allows Chrysler to cancel dealer franchise agreements.
- Fiat has agreed to transfer billions of dollars in technology and engineering resources to Chrysler for the purpose of building vehicles.
- Fiat has committed to building cars here in America, the president said.
- UAW has agreed to further cuts in wages and benefits. Daimler has agreed to give up its final stake in Chrysler and contribute to the company’s pension plan.
- GMAC has agreed to finance new Chrysler sales. The government will be providing additional capital to GMAC to free up credit for auto loans to consumers and allow dealers to finance its inventory.
- The Small Business Administration will announce tomorrow that it is expanding eligibility for some loans to include more suppliers and vehicle dealers.
“Necessary steps have been taken to give one of America’s most storied automakers, Chrysler, a new lease on life,” the president said in the press conference.