Chrysler LLC officially announced on Thursday that the once auto giant will file for Chapter 11 bankruptcy shortly after U.S. President Barack Obama made a midday speech, in which he indicated that the troubled automaker will form an alliance with the Italian carmaker Fiat Group SpA.
In a statement, Chrysler said it 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 and 24 of its wholly owned U.S. subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York.
At the same time, Chrysler announced that 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.
"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," said Bob Nardelli, chairman and CEO of Chrysler.
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.
To push the Chrysler forward, the U.S. government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of "business as usual."
Chrysler also 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.
Under the plan the Obama administration outlined Thursday, the Treasury Department will provide Chrysler with up to 3.5 billion U. S. dollars in DIP financing, and the Canadian government will provide around 800 million dollars and get 2 percent of Chrysler's equity. The United States has transferred 280 million dollars to a Chrysler warranty guarantee program.
The government will loan GMAC LLC additional money so it can take over financing of Chrysler vehicles from Chrysler Financial. The government already has infused nearly 6 billion dollars into GMAC.
(Xinhua News Agency May 1, 2009)
