WASHINGTON — In a dramatic noontime announcement about the fate of Chrysler, President Obama said on Thursday that a Chrysler/Fiat alliance has been forged and that the Italian automaker has "already agreed to transfer billions" to the ailing Detroit automaker. The president said that Chrysler will file for Chapter 11 protection "to clear away remaining obligations."
"This is not a sign of weakness," Obama said, referring to the bankruptcy filing. "This process will be quick and controlled. It will not affect the ability of American consumers to buy a Chrysler or have it serviced."
Chrysler announced Thursday afternoon that as part of the restructuring, most of its manufacturing operations will be "temporarily idled" starting May 4.
"Normal production schedules will resume when the transaction is completed, which is anticipated within 30-60 days," the company said in a statement. The automaker said that "the new company will produce and support quality vehicles under the Jeep, Dodge and Chrysler brands as well as parts under the Mopar brand." It said Chrysler dealerships will remain open and vehicle warranties will be "honored without interruption."
Chrysler confirmed shortly after Obama's speech that it had filed Thursday under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of New York. Chrysler also asked the court for approval of the agreement with Fiat and the sale of Chrysler's principal assets to the new company. It said this filing "should allow a leaner new company to emerge in a matter of 30-60 days."
Chrysler Chairman and CEO Bob Nardelli said the Fiat alliance "transforms Chrysler into a vibrant new company with a wealth of strategic advantages."
Obama used the speech to underscore that he believes Chrysler will "emerge stronger and more competitive." Obama characterized the Chrysler/Fiat union as having "a strong chance of success" and said that the federal government will make additional loans to Chrysler. The Fiat deal and the bankruptcy filing are an "opportunity for Chrysler to remake itself," Obama added.
As part of the deal, Fiat can only control Chrysler when the Detroit automaker repays its U.S. loans.
However, industry observers predict that it will be two or three years before U.S. consumers will be able to get their hands on any Fiat-based Chrysler vehicle. It will take months to retool any U.S. Chrysler plants to accommodate Fiat products and to re-engineer Fiat vehicles to meet American safety and environmental standards.
In an unexpected twist, Obama and Chrysler said that GMAC has agreed to finance new Chrysler loans. This means that Chrysler will switch to GMAC Financial Services as the financing source for new Chrysler vehicles.
Obama, who had rejected the automaker's original restructuring plan and ordered Chrysler to finalize an agreement with Fiat in just 30 days, took pains to reassure the country that "the necessary steps have been taken to give Chrysler a new lease on life."
Referring to the negotiations of the past month, Obama said "seemingly insurmountable obstacles have been overcome." The obstacles included what he said were a group of investment firms and others who held out for "an unjustified taxpayer-funded bailout." Those unnamed investors were demanding twice the return of other investors, the president added.
Several of the 45 banks and hedge funds holding the bonds on Chrysler refused the U.S. Treasury Department's latest offer of $2.25 billion in cash in exchange for retiring $7 billion in debt, in what appeared to be a high-stakes poker game. "Despite substantial progress on many fronts, Chrysler was not able to obtain the necessary concessions from all of its lenders, which would have avoided the need for a bankruptcy proceeding," Chrysler said in a statement.
The president said that help will also be forthcoming for recreational vehicle dealers with an announcement by the Small Business Administration due Friday that the U.S. government will accelerate the purchase of a federal vehicle fleet.
Inside Line says: The end of a strange saga for Chrysler and the beginning of a new era engineered by the U.S. government. But expect some growing pains as Chrysler and Fiat join forces. — Anita Lienert, Correspondent
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