Deadlock puts Chrysler on brink of bankruptcy
The Obama administration Wednesday night planned to send Chrysler into bankruptcy, replace chief executive Robert Nardelli and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a re-energized competitor in the global economy.
The Washington Post
WASHINGTON — The Obama administration Wednesday night planned to send Chrysler into bankruptcy, replace chief executive Robert Nardelli and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a re-energized competitor in the global economy.
Government officials clung to 11th-hour hopes Wednesday night that bankruptcy could be averted, but talks broke down with Chrysler's creditors. The near-certain bankruptcy filing could happen as soon as today.
A bankruptcy filing by Chrysler would be the first by one of Detroit's three auto companies amid a devastating slump, and could serve as a preview of what a filing by General Motors might look like. GM, which like Chrysler received federal assistance last year, faces a June 1 deadline for its own restructuring.
To win over several hedge funds, which have been holding out for better terms, the Treasury increased its cash offer to holders of Chrysler's secured debt by $250 million, to $2.25 billion, these sources told The New York Times. If all of the secured holders would agree to the new deal, which would give them the cash in exchange for retiring about $6.9 billion of debt, Chrysler would still have a chance of restructuring out of bankruptcy court.
Several investment funds, however, continued to reject the Treasury's sweetened offer at a vote of the lenders Wednesday evening, people familiar with the talks said.
The U.S. government's attempt to save the automaker amounts to another extraordinary intervention in the economy and a landmark event in the history of the U.S. auto industry.
Under the administration's detailed court strategy, ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding.
Company and government officials had feared that a bankruptcy would stain the brand, shake customer confidence and erode sales, but the administration said it would seek to use the process to create a new Chrysler company.
Its ownership would be divided, with the company's union-retiree health fund receiving a 55 percent stake, Fiat would claim as much as a 35 percent share and the United States would take 8 percent. The Canadian government would receive 2 percent.
The automaker's current majority owner, the private-equity firm Cerberus Capital Management, would have its holdings wiped out.
During the bankruptcy, the governments would provide $4 billion in new funds, with 80 percent coming from the United States and 20 percent from Canada, which hosts a number of Chrysler operations. As the company emerged from its reorganization, the United States would provide roughly another $5 billion, with more coming from Canada, the sources said. The sources warned, however, that the figures were fluid.
Particularly striking to some economists and historians is that the plan turns over ownership of a major U.S. industrial company to an employee-run trust, a deal that is "unprecedented on this scale," according to Harley Shaiken, a University of California, Berkeley, professor and expert on unions.
The government plan also calls for ensuring that Chrysler maintains substantial U.S. manufacturing operations. It requires that at least 40 percent of company sales volumes remain manufactured domestically, or for the company's total production in this country to remain at least at 90 percent of its U.S. production last year.
"Anyway you cut it, the union is going to be a major presence at the company," Shaiken said.
Information from The New York Times is included
Copyright © 2009 The Seattle Times Company
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