Chrysler files Chapter 11, forms Fiat alliance
Chrysler LLC has filed for bankruptcy and has reached an agreement to establish a global strategic alliance with Italian auto manufacturer Fiat SpA.
"Despite substantial progress on many fronts, Chrysler was not able to obtain the necessary concessions for all of its lenders, which would have avoided the need for a bankruptcy proceeding," said the company in an official statement.
Chrysler also will file a motion requesting "the swift approval... of the agreement with Fiat and the sale of Chrysler's principal assets to the new company."
During Chrysler's restructuring process, the United States government will provide sufficient debtor-in-possession financing to allow continuation of "business as usual." Chrysler says it will "seamlessly" honor warranty claims, pay suppliers and keep its dealer network operating.
"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 that 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," says Chrysler Chairman and CEO Robert Nardelli.
Nardelli plans to leave the company after completion of the Fiat alliance.
When the process is completed, Chrysler's Voluntary Employee Beneficiary Association will own 55% of the company; Fiat will hold a 20% initial stake and the U.S. and Canadian governments will own proportionate shares of a 10% stake. Fiat will have the right to boost its ownership stake by an additional 15% in three increments if it meets the following criteria:
* 5% for bringing a 40 mpg vehicle platform to Chrysler that would be made in the U.S.
* 5% for providing a fuel-efficient engine family to be made in the U.S. for Chrysler vehicles.
* 5% for providing Chrysler access to Fiat's "vast global distribution network to facilitate the export of Chrysler vehicles."
Fiat cannot become majority owner until after all U.S. government loans have been completely paid.
As part of the reorganization, most of Chrysler's manufacturing operations will be temporarily idled, effective May 4. Normal production schedules will resume when the deal is completed, which is expected to happen within 30 to 60 days.