Breakdown of Chrysler's Big Day [w/POLL]
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It's not often your company both files for bankruptcy and gets new owners in a single day, but that's just what happened to Chrysler today. We've had some time to digest all the details after President Obama's press conference at noon, and here's what we know...
- Blame it on the creditors – President Obama cited Chrysler's creditors' refusal to accept a debt-for-equity swap as the main reason filing for Chapter 11 was the only option left.
- Chrysler divided – 55% will be owned by the Voluntary Employee Beneficiary Association (VEBA), 10% shared proportionally between U.S. and Canadian governments, 20% owned by Fiat.
- Fiat's got goals – Remaining 15% of company will be distributed to Fiat in three 5% increments for meeting the following goals: creating U.S.-built 40-mpg vehicle platform, providing a U.S.-built fuel-efficient engine family and giving Chrysler access to global distribution network.
- Nardelli nixed – Current Chrysler CEO Robert Nardelli will leave after the alliance with Fiat is completed and the company emerges from bankruptcy, though he has stated that he was not asked to leave. UPDATE: Former CEO Tom LaSorda will retire and Chrysler's President Jim Press will be sticking around.
- GMAC gets the job – Chrysler Financial has been replaced by GMAC as Chrysler's preferred lender for wholesale and retail transactions.
- In-and-Out – Chrysler and the U.S. Auto Task Force estimate the company will emerge from bankruptcy in 30 to 60 days.
- Dealerships to be cut -- No surprise, but Chrysler's dealer network will be cut down as part of the restructuring. No hard numbers are available yet, but expect details to follow in the next 24 hours.
- Business as usual – Chrysler will largely run as normal in the interim, being funded by government-backed debtor-in-possession financing; warranties will be honored, suppliers paid and dealers supplied with inventory, but no new vehicles will be built until bankruptcy terms are finalized.
[Image: Bill Pugliano/Getty]
PRESS RELEASE:
Chrysler LLC and Fiat Group Announce Global Strategic Alliance to Form a Vibrant New Company
Auburn Hills, Mich., Apr 30, 2009 - Chrysler LLC today announced that, as a result of the comprehensive restructuring plan agreed to by many of its stakeholders, it has reached an agreement in principle to establish a global strategic alliance with Fiat SpA to form a vibrant new company. It will allow Chrysler and Fiat to fully optimize their respective manufacturing footprints and the global supplier base, while providing each with access to additional markets. Fiat powertrains and components will also be produced at Chrysler manufacturing sites.
"This partnership transforms Chrysler into a vibrant new company with a wealth of strategic advantages," said Bob Nardelli, Chairman and CEO of Chrysler. "It enables us to better serve our customers and dealers with a broader and more competitive line-up of environmentally friendly, fuel-efficient high-quality vehicles. Benefits to the new company include access to exciting products that complement our current portfolio, technology cooperation and stronger global distribution."
Chrysler initiated discussions with Fiat more than a year ago to develop plans for a global product alliance. Over the past several months, these discussions have evolved and expanded. Chrysler and many of its stakeholders worked tirelessly to agree upon concessions that will result in a significantly lower cost base and enable fulfillment of a broader strategic alliance.
"We want to personally assure everyone that the new company will produce and support quality vehicles under the Jeep®, Dodge and Chrysler brands as well as parts under the Mopar® brand. Chrysler employees will become employees of the new company. Chrysler dealerships remain open for business serving our customers. All vehicle warranties will be honored without interruption and consumers can continue to purchase our vehicles with complete confidence," explained Nardelli.
Despite substantial progress on many fronts, Chrysler was not able to obtain the necessary concessions from all of its lenders, which would have avoided the need for a bankruptcy proceeding. As a result, under the direction of the U.S. Treasury, Chrysler LLC and 24 of its wholly owned U.S. subsidiaries today filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.
"Even though total agreement was not possible, I am truly grateful for all that has been sacrificed, on the part of many of Chrysler's stakeholders to reach an agreement in principle with Fiat," said Nardelli. "My number one priority has been to preserve Chrysler and the thousands of people who depend on its success. 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. "
Chrysler also will file a motion under Section 363 of the Bankruptcy Code requesting the swift approval by the Court of the agreement with Fiat and the sale of Chrysler's principal assets to the new company. The benefit of this type of filing is speed. It should allow a leaner new company to emerge in a matter of 30 to 60 days, well positioned for long-term viability.
Nardelli, who has been leading Chrysler since August 2007, also announced to Chrysler LLC's Board of Management and the U.S. Treasury his plan to leave the company following the emergence of the new company from Chapter 11 and the completion of the alliance with Fiat. He will return to Cerberus Capital Management LP as an advisor. "Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat," said Nardelli. "I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance."
During the restructuring process, the government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of "business as usual." The company will seamlessly honor warranty claims, pay suppliers and keep our dealer body operating to continue to serve our valued customers.
"To create this vibrant new company, we are using this structured bankruptcy to rapidly implement tough but necessary changes, including: the agreed upon wage and benefit structure for active and retired employees that is competitive with those of transplant manufacturers; a reduction of debt and interest expense; the disposition of idle assets; a rationalized and more efficient dealer network; and sound agreements with our suppliers," said Nardelli.
Chrysler's Mexican, Canadian and other international operations are not part of any bankruptcy filing.
As part of the restructuring and with the backing of the U.S. Treasury, we have reached an agreement in principle with GMAC to become the preferred lender for Chrysler dealer and consumer business. GMAC will be able to offer the best long-term finance options for Chrysler dealers and customers with standard rate installment products.
When the transaction is completed, the Voluntary Employee Beneficiary Association (VEBA) will own 55 percent of the new company and the U.S. and Canadian governments will own proportionate shares of a 10 percent 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 percent in three increments as it meets the following criteria: 5 percent for bringing a 40 mpg vehicle platform to Chrysler to be produced in the U.S.; 5 percent for providing a fuel-efficient engine family to be produced in the U.S. for use in Chrysler vehicles; and 5 percent 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 U.S. government loans have been completely repaid.
As a part of the restructuring, most manufacturing operations will be temporarily idled effective Monday, May 4, 2009. Normal production schedules will resume when the transaction is completed, which is anticipated within 30 to 60 days.
"We want to recognize the Administration, the U.S. Treasury, President's Auto Task Force, as well as Members of Congress and representatives at the state and community level and Canadian Federal and Ontario Provincial governments for their energy and efforts in helping to move this new company forward," Nardelli said. "It is also important to acknowledge Cerberus and Daimler, which provided the foundation for the alliance as well as Chrysler's many other stakeholders including the UAW and CAW leadership, employees, dealers and suppliers. Without their deep sacrifices, unstinting loyalty and enduring belief in Chrysler, the alliance would not have been possible. We look forward to our new partnership with Fiat. To be sure, there will be many changes as we move forward to implement our plans. But today, 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."
Reader Comments (Page 1 of 4)
Ed 2:04PM (4/30/2009)
LOL; http://img2.imageshack.us/img2/3714/picture4p.png
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Sea Urchin 2:07PM (4/30/2009)
I was the YES vote
zamafir 2:08PM (4/30/2009)
"Nardelli nixed – Current Chrysler CEO Robert Nardelli will leave after the alliance with Fiat is completed and the company emerges from bankruptcy, though he has stated that he was not asked to leave."
Right... because the Nardelli brain trust was pivotal to... well... nothing. I didn't care for lutz but lutz did bring things to fruition, rightly or not. But Nardelli? Failed at home depot, Failed here, what idiot good old boy's board is going to hire him next? I can't wait.
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teamkitty 2:38PM (4/30/2009)
Nardelli raped Home Depot and left with a 1/4 BILLION dollar golden parachute. Not enough money old man? Well then, do it again with Chrysler.
At least he gets to go home and reflect on all of his past failures in this modest home (i hate this man and people like him with a passion):
http://virtualglobetrotting.com/map/48980/view/?service=1
Edsel 2:55PM (4/30/2009)
@teamkitty, I agree but think......
"Rosebud"
Rich 6:34PM (4/30/2009)
Haha! I love the way the houses get progressively smaller as you follow the road east. (Note: S is up.)
MF 2:09PM (4/30/2009)
I wonder if GMAC being picked as the lender of choice is a telegraph of a possible GM-Chrysler marriage down the road, if Chrysler-Fiat doesn't work out?
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Slinky McDuck 2:16PM (4/30/2009)
Cerberus owns Chrysler Financial. Moving to GMAC was probably part of the punishment for the US government needing to intervene.
carlbolt 2:40PM (4/30/2009)
"Cerberus owns Chrysler Financial. Moving to GMAC was probably part of the punishment for the US government needing to intervene."
Doesn't Cerberus own GMAC too?
jpm100 3:09PM (4/30/2009)
Cerberus owns both and choked off both Chrysler and GM from credit increasing both company's desperation for cash. Ford retained control of it financial arm.
Not the full explanation of each company's forturnes, but not a complete coincidence either.
sk 2:11PM (4/30/2009)
Looking at Chrysler's line-up, there is not one car I'm interested to buy today. Its gonna be a long way to recovery, If it takes 24-30 months before we see any Fiat product here in the US. My conclusion, chapter 11 will be around much longer than 2 month.
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Alex 2:20PM (4/30/2009)
No, bankruptcy will be a short and sweet but for the next two years or so Fiat, VEBA and the US & Canadian Gov'ts will see no return on their investment.
I think the technology and knowledge at Fiat is there to pull Chrysler from the depths but it is going to take some time.
jfox8 2:17PM (4/30/2009)
Well, this is just a giant waste of time in my opinion... This in the long term is going to drag down Fiat, which I understand is not on the best of financial footings as it is. I especially love the title that says "Alliance to Form a Vibrant New Company." Are they on crack? I realize there are some good cars at Chrysler, but do people honestly think that Fiat are going to fix things? If I was in the market to buy a new car, Chrysler would be on the bottom of the list. They should have let the company die and blame it on the market. Now we will see it eventually die in a better market (hopefully), and see the company for what it is. R.I.P. (1-2 years from now)
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happyfun86 2:21PM (4/30/2009)
Nardelli wasn't asked to leave? Yeah, sure, whatever.
On the plus side, I'm looking forward to that Fiat deal. They have some decent-looking cars that would definitely be more appealing to look at than the stuff Chrysler has right now.
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tbirdfive0 2:21PM (4/30/2009)
Anyone else reminded of the Diamler-Chrysler merger announcement?
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zamafir 2:30PM (4/30/2009)
Yup, because the core issue remains. Chrsyler is a failed company. They have no money for R&D and need surrogate platforms. They'll continue to be bought and sold until they a) run themselves responsibly with enough equity to develop their own platforms, or b) fail for good and sell Jeep to someone who's competent.
Dave 5:11PM (4/30/2009)
"Anyone else reminded of the Diamler-Chrysler merger announcement?"
"Yup, because the core issue remains. Chrsyler is a failed company. They have no money for R&D and need surrogate platforms."
When the Daimler Chrysler merger happened, Chrysler had billions in cash reserves - no shortage of R&D money. The opposite is true today.
When the Daimler Chrysler merger happened, it was a merger of two companies that relied on large vehicle sales for all (or nearly all) of their profitability. Today, Fiat is successful at designing and building small and midsize cars, while Chrysler is successful at building large cars and trucks.
Very different mergers, IMHO.
Fiat/Chrysler has the potential to produce a solid line of cars and trucks. They just need someone like Lutz to head the design department and prevent them from building any more Sebrings, Calibers, and Compasses. Ugh.
Sean Flanagan 2:23PM (4/30/2009)
Of course Obama criticized the creditors for not taking the deal. If they had taken the deal, it would mean more government control over the company. Personally, I think the combination of bankruptcy and partnering with Fiat is the best option in this case. Now let's see them use the existing dealer network to bring us the 500 and Alfas we want.
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Paul 2:30PM (4/30/2009)
As long as I can buy a Fiat 500 or a Alfa Brera before they die, it's okay with me
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John 2:24PM (4/30/2009)
I love the built-in benchmarks Fiat must meet to gain a greater share. That's the way to do it! They can't have any more pie unless they absolutely produce greener, more efficient cars.
Great way of turning this whole mess into an opportunity for much-needed advancement, by force, when needed.
On the surface it looks like a smartly conceived plan. How it will play out remains to be seen.
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