Obama announces Chrysler bankruptcy, deal with Fiat; Nardelli out soon *UPDATED
by Frank Filipponio on Apr 30th 2009 at 12:36PM 
President Obama has just concluded a televised press conference where he announced that Chrysler will indeed head into Chapter 11 bankruptcy proceedings almost immediately. As part of the same announcement, he noted that the Auburn Hills automaker has reached terms with Fiat and will be headed into a partnership agreement that will include a cash infusion and technology transfers. By some estimates, the restructuring is expected to take 30-to-60 days.
The announcement came after late-night talks with a small group of creditors broke off before a restructuring plan could be reached. During the conference, Obama took pains to note the sacrifice of many players, including some in the financial sector, but he openly chastized other hedge fund operators and speculators for holding out for more debt compensation, arguing that they were looking to make money on the taxpayer dollars.
Keeping an upbeat tone in his announcement, Obama also reassured Americans that they will be repaid in full before Fiat gets any stake in the automaker, and that GMAC has agreed to step in to provide loans for Chrysler vehicles. Canada is also pitching in to make it work, but the U.S. taxpayers will be on the hook for an additional $8 billion in aid. Obama also reiterated that the government will stand behind Chrysler and General Motors vehicle warranties, and he extolled Americans to purchase new vehicles from domestic automakers.
Finally, in related news, it is being reported that Chrysler CEO Bob Nardelli (whom Obama praised during the press conference) will exit the company after the bankruptcy filing is complete.
*UPDATE: A new Chrysler press release (posted after the jump) confirms that Nardelli will leave Chrysler after it emerges from bankruptcy:
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."
The Detroit Bureau's Ken Zino has excellent analysis of the announcement here.
More details and analysis on the way...
[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."
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Reader Comments (Page 1 of 5)
Bigbuck17 12:53PM (4/30/2009)
Obama gettin these fools straight.
Reply
Taglane 1:12PM (4/30/2009)
You sound like Will Smith in Independence Day.
no. 1:17PM (4/30/2009)
Obama breaking this country in half.
fixitfixitstop 10:19AM (5/01/2009)
no.: I think Bush already did that.
Rick C. 12:46PM (4/30/2009)
Cooperation on many fronts in this deal. Let's hope something positive comes of it.
Reply
Sea Urchin 1:05PM (4/30/2009)
I sure hope Chrysler comes out stronger than ever, BUT now that the great one himself announced the bankruptcy it will get A LOT of unnecessary attention.
#1 New was Pig Flu
#2 Specter story
and Chrysler was in the 3rd place
Now that the President himself spoke on this the story becomes #1 issue and needless to say this will affect sales.
All that government had to do was force Chrysler quietly into bankruptcy, kill the UAW there, kill the dealers and come out a new company.
Sea Urchin 1:09PM (4/30/2009)
#1 NEWS is what i meant to say
Alex 1:14PM (4/30/2009)
Sea Urchin - did you honestly think the president was going to kill the UAW? You can be guaranteed that the post chaper 11 Chrysler will build its vehicles using unionized labor.
~D. 1:42PM (4/30/2009)
"I sure hope Chrysler comes out stronger than ever, BUT now that the great one himself announced the bankruptcy it will get A LOT of unnecessary attention. "
...?....Wayne Gretzky?!
Why would Wayne Gretzky comment on the Chrysler deal?
Sea Urchin 1:54PM (4/30/2009)
That's funny.
Jake B 1:55PM (4/30/2009)
Keeping the unions around is all about keeping those union workers voting Democrat. Next up is amnesty for millions of democrat Mexican voters.
Dave 8:38PM (4/30/2009)
Yes, Jake B. Illegal Immigrants are going to vote to gain amnesty. Right. That is totally how democracy works. Now please get back to driving your tractor.
notYou 3:57PM (5/01/2009)
Dave: "Yes, Jake B. Illegal Immigrants are going to vote to gain amnesty. Right."
Why not, they voted for the President, didn't they?
The Luigiian 12:47PM (4/30/2009)
"the Auburn Hills automaker has reached terms with Fiat and will be headed into a partnership agreement that will include a cash infusion and technology transfers. By some estimates, the restructuring is expected to take 30-to-60 days."
Awesome. I hope it only takes that long to do Chrysler's restructuring.
So when do Chrysler vehicles start getting this tech? Will the Patriot finally get a proper six-speed automatic in the near future? What about the Avenger and Sebring? Will the Avenger and Sebring be replaced by better vehicles from Fiat sooner than later?
So many questions...
Reply
Kimura 12:58PM (4/30/2009)
Well the 200C was greenlighted for production, I would assume it replaces the Sebring...dunno what's in store for the Avenger.
I hope it's quick, swift, and a stronger company comes out of it.
Sea Urchin 1:07PM (4/30/2009)
Liguan, i heard an auto analist speak and he said that at earliest we will see first Fiat in USA about 2 years after the two combine.
Rocketboy 2:00PM (4/30/2009)
I just hope that they are not Chryslerized Fiats.... I want a straight from Europe Fiat 500. Not a bastardized one. Don't screw this up.
Mr.Oak 12:47PM (4/30/2009)
I missed the press conference, what happens to Cerberus in all this? Are they still owners of Chrysler?
Reply
phoenix 12:57PM (4/30/2009)
Under the terms widely discussed (both here and in various media), Cerberus would relinquish any ownership stake in Chrysler. Daimler has also agreed to end its 19.9% stake, as well.
About damn time.
Jared 1:13PM (4/30/2009)
cerberus gets bupkis. Their stake in Chrysler is gone. Their stock is worth $0.