Reuters reports, "Chrysler LLC filed for bankruptcy on Thursday and announced an industry-changing deal with Fiat, after being pummeled by sliding auto sales and unable to reach agreement on restructuring its debt." The company had managed to negotiate wage reductions and other concessions with both American and Canadian auto workers, and debt resolution with some of its largest creditors -- but was unable to reach an agreement on debts with some smaller creditors before a White House-imposed deadline of close-of-business Thursday.
The company will not cease operations. Instead, the New York Times explains, "Chrysler is reorganizing under Chapter 11 of the United States Bankruptcy Code. The law allows companies to shed assets, restructure debt, cancel contracts and close operations that normally would have to continue running. Once they secure financing to emerge from bankruptcy, these companies are reconstituted as new legal entities." If the reorganization should fail, Chrysler "might turn to a Chapter 7 bankruptcy, which would mean a liquidation."
Forbes reports, "Chrysler says most of its manufacturing operations will cease operation while it is in bankruptcy."
On the same day as the bankruptcy was announced, Chrysler signed an agreement to enter into a partnership with Italian automaker Fiat as part of its restructuring plan. The agreement will likely leave Fiat largely in control of Chrysler's operations.
The Los Angeles Times explains, "That agreement allows Fiat to obtain a 20% equity stake in Chrysler, with incentives to increase its share of the company to 35%. Fiat's stake would rise by 5 percentage points when it provides distribution for Chrysler cars outside of North America, an additional 5 when it introduces a new, fuel-efficient engine to be built in Chrysler's U.S. factories, and 5 more when it builds a car that gets 40 miles per gallon in Chrysler factories."
The U.S. government "will get an 8% share of the new Chrysler," according to the LA Times. "The Treasury Department will be able to select four independent directors for the company's new board 'but thereafter will not play a role in the governance or management of the company,' according to the White House."
The United Auto Workers union would retain a 55% share, through the trust that manages retiree health care. However, the Detroit News explains, "The independent trust that will oversee retiree health care will have 55 percent equity in Chrysler LLC, but that does not necessarily translate into a majority voting share in the company, nor does it mean the United Auto Workers will be calling the shots in a restructured Chrysler." The health care trust, known as the Voluntary Employees' Beneficiary Association, or VEBA, "will receive 55 percent of the stock in the restructured Chrysler but the classification of the stock could mean it does not warrant majority control."
Autoblog adds, "Since the only job of the VEBA is to ensure that the retiree health-care fund is properly funded, by rule, it cannot take ownership of the automaker. Though the UAW won't have majority representation, most expect the workers to receive at least one seat at the board."
That leaves Fiat's eventual 35% share as, effectively, the controlling interest.
Chrysler CEO Robert Nardelli has already confirmed that he will leave the company as a result of the bankruptcy agreement. CNN Money reports, "Nardelli, who took over the leadership role on Aug. 6, 2007, said he decided that now was the time to announce his departure and that he wasn't asked to step down by the Obama administration." Nardelli's departure "clears the way for Fiat SpA CEO Sergio Marchionne to either take over the top spot or name a successor."
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