Auburn Hills, Michigan – Chrysler LLC has reached an agreement that will see it file for bankruptcy protection and form a new company through a strategic alliance with Fiat SpA. The company said the move is the result of a comprehensive restructuring plan agreed to by many of its stakeholders, including unionized Chrysler workers in Canada and the U.S.
“This partnership 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 lineup 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.”
Nardelli said that the new company will produce and support vehicles and parts under the Jeep, Dodge, Chrysler and Mopar brands. Current employees will become employees of the new company, Chrysler dealerships will remain open, and all vehicle warranties will be honoured without interruption, he said.
The company said that it was not able to obtain the necessary concessions from all of its lenders, which would have avoided the need for bankruptcy proceeding. As a result, under the direction of the U.S. Treasury, Chrysler LLC and 24 of its wholly-owned U.S. subsidiary filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. Chrysler will also file a motion under the code requesting swift approval by the court of the agreement with Fiat, and the sale of Chrysler’s principal assets to the new company. If granted, the new company should emerge within 30 to 60 days.
“Even though total agreement was not possible, I am truly grateful for all that has been sacrificed, on the part of many of Chrysler’s stakeholders to reach an agreement in principle with Fiat,” Nardelli said. “My number-one priority has been to preserve Chrysler and the thousands of people who depend on its success. 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.”
Nardelli, who has been leading Chrysler since August 2007, said he plans to leave the company following its emergence from Chapter 11 and completion of the alliance with Fiat, and will return to Cerberus Capital Management LP as an advisor.
During the restructuring process, the government will provide sufficient debtor-in-possession financing to allow the continuation of “business as usual,” including honouring warranty claims, paying suppliers, and keeping the dealer body operating.
Chrysler’s Canadian, Mexican and other international operations are not part of any bankruptcy filing. When the transaction is completed, the Voluntary Employee Beneficiary Association (VEBA), managed by the Union Auto Workers Union (UAW), will own 55 per cent of the new company. The U.S. and Canadian governments will own proportionate shares of a 10 per cent stake, while Fiat will initially hold a 20 per cent ownership stake. It will have the right to increase its ownership in stages as it meets various criteria, including bringing fuel-efficient vehicle platforms and engines to the U.S. for production, and providing Chrysler with access to its global distribution network to facilitate the export of Chrysler vehicles. The Italian automaker cannot become a majority owner until after all U.S. government loans have been completely repaid.
As part of the restructuring, Chrysler has also reached an agreement in principle with GMAC, which will become the preferred lender for Chrysler dealer and consumer business.
Most of the company’s manufacturing operations will be temporarily idled, effective Monday, May 4, 2009, with normal production schedules resuming when the transaction is completed, which is anticipated within 30 to 60 days.