President Obama announced today that Fiat and Chrysler’s partnership will go through and that Chrysler will file for Chapter 11 Bankruptcy Protection to complete its restructuring. This was later confirmed by Chrysler.
The reason it had to come this was because although Chrysler had reached deals with its major lenders and its unions, a group of its smaller lenders, which hold about 30% of the automaker’s debt, had refused to compromise before today’s deadline. Obama wasn’t too happy with these lenders.
According to Obama, the bankruptcy will be a short and surgical one and that during this process, Chrysler’s day-to-day operations, sales and services and warranties would not be affected. Furthermore, no additional job losses are expected.
In regards to the Chrysler’s partnership with Fiat, it “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.”
It was also revealed that Nardelli, CEO of Chrysler since August 2007, plans to leave the company after it emerges as new company from Chapter 11 and the completion of its 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.”
For more details about the partnership agreement between the two automakers, see here. Fiat and the UAW will emerge from the bankruptcy process as the largest shareholders of Chrysler; the U.S. and Canadian government will hold the remaining shares.
During this restructuring, most of Chrysler’s manufacturing operations will be temporarily idled beginning Monday, May 4, 2009. Normal production schedules will resume when the transaction [between all interested parties involved] is completed, which is expected to be within 30 to 60 days.