Green Car Congress  
Home Topics Archives About Contact  RSS Headlines

« DOE to Fund Up to $240M for Class 8 Supertruck and Advanced Technology Light-Duty Powertrains | Main | Correction: Sainsbury Electric Vans »

Print this post

New Chrysler Group LLC and Fiat Finalize Global Strategic Alliance; New Global Brand-Focused Structure

10 June 2009

With the US Supreme Court yesterday clearing the final potential obstacle, Chrysler Group LLC and Fiat Group finalized their previously announced global strategic alliance, forming the “new" Chrysler. The “old” Chrysler had entered bankruptcy on 30 April 2009. The new Chrysler will begin operations immediately.

Under the terms approved by the US Bankruptcy Court in New York and various regulatory and antitrust regulators, the company formerly known as Chrysler LLC today formally sold substantially all of its assets, without certain debts and liabilities, to a new company that will operate as Chrysler Group LLC.

Chrysler Group in turn issued to a subsidiary of Fiat a 20% equity interest on a fully diluted basis in the new company. Fiat has also entered into a series of agreements necessary to transfer certain technology, platforms and powertrains to the new Chrysler. Fiat’s equity interest will increase in increments by up to a total of 35% in the event that certain milestones mandated by the agreement are achieved, but Fiat cannot obtain a majority stake in Chrysler until all taxpayer funds are repaid. (Earlier post.)

Similarly, the United Auto Workers’ Retiree Medical Benefits Trust, a voluntary employees’ beneficiary association trust (VEBA) has been issued an equity interest in Chrysler Group equal to 55% on a fully diluted basis. The US Treasury and the Canadian Government have been issued an equity interest equal to 8% and 2% on a fully diluted basis, respectively. These interests reflect the anticipated share dilution as a result of Fiat’s incremental equity assumption once the milestones outlined in the strategic alliance agreement are achieved.

In addition to Marchionne, currently the Chief Executive Officer of Fiat S.p.A. serving as CEO of the new Chrysler, the company will be managed by a nine-member Board of Directors, consisting of three directors to be appointed by Fiat, four directors to be appointed by the US Government, one director to be appointed by the Canadian Government and one director to be appointed by the United Auto Workers’ Retiree Medical Benefits Trust. The Board is expected to name C. Robert Kidder as Chairman. The process of determining additional board members is continuing and updates will be announced as appropriate.

As previously announced, Chrysler has entered into an agreement with GMAC Financial Services to provide automotive financing products and services to the Company’s North American (NAFTA) dealers and customers. GMAC Financial Services will be the preferred lender in North America for Chrysler, Jeep and Dodge dealer and consumer business, including wholesale of new and used vehicles as well as retail.

Organizational Structure

Chrysler Group’s new organization is based on a global brand-focused structure comprised of the Chrysler, Jeep, Dodge and Mopar brands, each with full profit and loss accountability. Common Commercial, Industrial and Corporate functions have been put in place to support the development, manufacture, distribution and sale of Chrysler, Jeep and Dodge products and Mopar parts by the brand organizations.

To assist the new company in the transition, Jim Press is appointed Deputy CEO and Special Advisor, reporting to Marchionne. In this position, Press will be instrumental in the restructuring of the Chrysler Group LLC. Press served most recently as Chrysler LLC Vice Chairman & President.

In support of the Chrysler Group’s brand operations, the company announced the following appointments reporting to Marchionne:

  • Peter Fong is appointed President & Chief Executive Officer, Chrysler Brand, with full profit and loss responsibility for the Chrysler product portfolio. Fong will be the lead executive for the Sales organization with enterprise-wide responsibility. He served most recently as the Director of the Mid-Atlantic Business Center.

  • Michael Manley is appointed President & Chief Executive Officer, Jeep Brand, with full profit and loss responsibility for the Jeep product portfolio. Manley will also have enterprise-wide responsibility for the Product Planning organization with responsibility for coordinating the product plan and volume requirements of the Chrysler, Jeep and Dodge brand functions. He will work with the other brand Presidents to translate these into operating plans for the product development and manufacturing organizations. Manley served most recently as Executive Vice President, International Sales & Global Product Planning Operations.

  • Michael Accavitti is appointed President & Chief Executive Officer, Dodge Brand, with full profit and loss responsibility for the Dodge product portfolio. Accavitti will also have enterprise-wide responsibility for the Marketing organization with responsibility to coordinate worldwide marketing strategies, brand development and advertising for the Chrysler, Jeep and Dodge brands. Accavitti served most recently as Director, Dodge Brand Marketing.

  • Pietro Gorlier is appointed President & Chief Executive Officer, Mopar Service & Parts and Customer Services, with full profit and loss responsibility for the Mopar product portfolio and Service & Parts operations as well as Chrysler’s Customer Service operations. Gorlier will have shared accountability with the brands, responsible for parts and services growth and delivery and an integrated world-class approach to customer support. Mr. Gorlier joins Chrysler Group from Fiat Group Automobiles and CNH, where he most recently served as the head of the Network and Owned Dealerships organization.

  • Joe ChamaSrour will continue to lead the new company’s operations in Mexico as President & CEO, Chrysler de Mexico.

  • Reid Bigland will continue to lead the new company’s operations in Canada as President & CEO, Chrysler Canada.

In support of the industrial operations of Chrysler Group LLC, the following appointments are announced, reporting to Marchionne:

  • Scott Kunselman is appointed to lead the Product Engineering organization as Senior Vice President. Kunselman replaces Frank Klegon, who has announced his intention to retire. In this position, Kunselman has responsibility for all product development strategy and advanced-vehicle engineering. He also oversees product-development processes, testing and validation. Mr. Kunselman recently served as Vice President, Truck Product Team and Core Team Leader

  • Ralph Gilles will continue to lead the Product Design organization as Senior Vice President.

  • Frank Ewasyshyn will continue to lead the Manufacturing organization as Executive Vice President and assumes responsibility for the World Class Manufacturing processes which are in the process of being rolled out throughout Chrysler’s manufacturing footprint.

  • Doug Betts will continue to lead the Quality organization as Senior Vice President.

  • Scott Garberding will continue to lead the Procurement organization as Senior Vice President.

  • Michael Keegan is appointed to lead the Supply Chain Management organization as Senior Vice President. In this position, Keegan is responsible for the critical volume planning and logistics functions in close coordination with the Brand CEOs. Keegan is also responsible for driving improvements in service levels, working capital efficiency and complexity reduction; optimizing demand and supply to benefit balancing the needs and requirements of the individual brands; and, establishing consistent and effective supply chain processes. Keegan recently served as Vice President, Volume Planning and Sales Operations.

June 10, 2009 in Market Background, Vehicle Manufacturers | Permalink | Comments (26) | TrackBack (0)

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c4fbe53ef011570ee313c970b

Listed below are links to weblogs that reference New Chrysler Group LLC and Fiat Finalize Global Strategic Alliance; New Global Brand-Focused Structure:

Comments

I am curious as to why the bankruptcy court (on their own?) placed Chrysler's unsecured stakeholders ahead of secured debtholders.

Since they apparently hold only about 5% to 10% ? of the debt, the secured debtholders are not a big part and were shorted in the settlement, and the supreme court will not intervene.

@ToppaTom,

Dunno, but I would suppose the theory is that the secured creditors made bad bets and deserved to be wiped out. The Unions were technically unsecured, but if they are not given something in exchange for the pension liability, who is going to build the cars? In theory, now Chrysler's stakeholder hourly workers will be more motivated to make the company successful. Given the myriad quality improvements that are needed, this is probably necessary for any of the new stakeholders to get their money out.

The problem of course is now there is no such thing as a secured debtholder and as such from now on all debts car makers accrue will be charged at unsecured rates. In other words they are all bleeped.

Secured debtholders are not secured when the value of the collateral is becomes zero. Any debtholder knows this (or at least should) and knows that that is a risk inherent in the investment.

What would have been the value of Chrysler if instead of going through with this deal, it was just liquidated? Anybody want to buy an obsolete car factory that makes cars that nobody wants to buy?

@Peter,

The collateral is nothing even close to zero, and indeed, the secure debt holders would have gotten their money back if the assets had been liquidated.

@ et. al.

Wintermane2000 is correct when he writes that the meaning of secured debt is now debased.

Chrysler was deemed too large to liquidate, and the government just willy nilly decided who got a piece of the pie - appalling.

As formed, the unions are poorly represented on the board, which may lead to additional stress on the company. I don't understand this.

Following bankruptcy, I believe that the unions should have been allowed to buy the company with a government backed loan. They are the biggest stake holder by far, and have all the power to make the reorganization a success. The secured lenders should have been respected.

Fiat has nothing on Chrysler engineers, and more could be hired from the excess supply at GM - more are needed. There was no reason to bring Fiat (a company teetering on bankruptcy itself) to the table other than a lack of trust on the part of the government. Fiat can provide tooling to replace the smaller Dodge offerings, and that's about it. However, the existing Caliber needs only a new engine, revised suspension and updated interior to be competitive. This can easily be done with existing resources. Fiat cannot provide the necessary changes to the rest of the car line to bring them up to date.

Chrysler went down the tubes because of the supremacy of the accounting department over the quality engineering department. GM is suffering the same fate for the very same reason. They both took their customers for granted. They also fociferously fought against national health care, and they traded a bloated retirement plan for Mexican production. All put together, these choices reduced their margins to the point where they were only making money on the car loans. Their customers, workers and paid retirees all became aged. When the fuel shortage hit, neither had a single competitive product in segment to offer - not one. The long recession only hastened the inevitable demise of Chrysler.

@JC,

Thank you for your detailed and well-reasoned response.

@ToppaTom,

If you are asking why did the court simply ignore the law, the answer is simple. Obama told it to.

If you are asking why the UAW, which should have gotten almost zero as an unsecured creditor, was given control of the company that answer is also simple. The UAW raised millions for Obama and his fellow travelers. The secured bond holders did not.

JC,

Good analysis and summary.

"..the unions should have been allowed to buy the company with a government backed loan...The secured lenders should have been respected.

I agree with this, however the Indiana group represented only a small proportion of creditors and should have banded together with others and did not.
If the Indiana group was a small fund, they should have been more wisely invested. The Federal Government is not the insurance group that indemnifies all investments for zero risk with no fees at the tax payer's expense.

Fiat has engine technology which can boost the economy of Chrysler's offerings considerably.&bnsp; It also has many models which may be amenable to US production, and if we get $4/gallon gas prices again this summer (which does not appear unlikely) the public may—MAY—be smart enough to hold out for something less thirsty than a Ram pickup.

SJC:  "secured creditor" used to mean something.  Now it means nothing, if a company is unionized.  Unionized companies will now be last in line for credit, and I expect this to come boomeranging back to bite the Obama administration.

The UAW retiree health care, which was far over and above what normal people get, was what helped bankrupt GM and Chrysler (and nearly bankrupted Ford).  As a citizen of the USA, I resent having secured investors including pension funds in Indiana shortchanged (throwing more burdens on the Pension Benefit Guaranty Corporation) so that the UAW can continue to enjoy more than the rest of us.

About Fiat: Apparently they were the only company that wanted to hook up with Chrysler. The bigger stronger companies were not standing in line to woo that ugliest of sisters.

In fact Daimler ran away; as fast as they could and as far. They gave away their 20% of stock (which was admittedly worthless.) They did get rid of a worry. That the UAW might someday go after them when the pension fund collapsed.

The chairman of Fiat has repeatedly said Fiat must become big or die. And that only a handful of car manufactures could survive. Whether his view is correct or not he is putting Fiat into almost any merger or acquisition that enlarges them.

The secured creditors just did not have enough support. With less than 5% objecting the judge wasn't going to stop the bankruptcy. Most of the secured creditors were more afraid of the government than of taking a bearable loss.

Crappy deal. You bet! Bankruptcy is a place where S happens. And this one proves it again. But flexible BK law is better than the alternatives.

One of the ways to secure the debt is to liquidate. A once successful car company is worth more functioning that melted down. The ethic is the most good for the most people. Few are served selling off the factory I beams for scrap metal.

Follow on: I agree that this will make it harder to borrow.

Lenders will be wary of unionized companies, any financial weakness, or a hint of possible government bail-outs.

Yes, secured creditors are aware that collateral can lose some or all value. That is not what happened here.

Damage done to US economy by obliterating established rule of BK law will be long-lasting and painful. Already handful of companies has troubles to refinance their corporate (bond) debt, and there are signs of divestment from companies with unionized workforce. Expect much more BK in near future of far better than Chrysler companies, due to inability to rollover their short-temp corporate bonds. Commercial and industrial real estate will be hit hardest.

JC:

Do you ever think why Chrysler Canada, GMC, GM in China and South America, etc., were profitable up to autumn of 2009, while Detroit was bleeding money for over decade? What was the difference? Workforce was unionized in these regions, models were about the same, governance too.

The main difference is huge fixed legacy costs of Detroit in US, mostly health care and pensions. In Canada, for example, health care is mostly government-financed (except for dental and alike complementary insurance), and pension obligations of companies is required by law to be pay-as-you-go (deductions from every paycheck going directly to independent pension fund out of reach of the company).

Now Chrysler and GM have slim chance to start over, when such legacy obligations are mostly unloaded.

For Chrysler, IMO, best shot is to become niche market manufacturer. Their Dodge RAM pick-up is good, especially with straight six Cummins diesel, and two-mode hybrid with displacement-on-demand V8. Dodge Charger/Caliber is built on Mercedes E-class platform, and as police chaser and muscle car will have stable pool of buyers. Jeep brand also has loyal buyers.

As for small-compact-family fuel sippers – good luck with catching-up with Japanese machine.

“The Indiana group was a small fund.”
“The Federal Government is not the insurance group that indemnifies all investments for zero risk with no fees at the tax payer's expense”
What?
The laws may partially indemnify some investors more than others as legally appropriate. Oops, I mean they used to.
The Federal Government IS supposed to enforce laws to ensure justice.

Since the Indiana group was only a small proportion of creditors (and voters)
AND was not ORGANIZED it apparently does not deserve justice.
Give the relatively small amount, legally due these little people to the unions and then simply smile and imply that it would be to slow to have done it right. They were just (retirement fund)“investors” after all and we all know that (non-union) retirement funds are for the rich.

Of course Daimler ran away from Chrysler. They were the ones who ruined the company. For a good description, read http://www.allpar.com/neon/engineering.html Remember, Chrysler was an innovative, profitable company before Daimler stepped in. Chrysler always made a profit on its small car Neon, unlike GM, which never made a profit on Saturn, or ditto for Ford and its Focus, or, for that matter, Toyota, which lost money on the Prius for all years of production but one.

The Indiana pension funds did not loan money to Chrysler. They bought loans at huge discount and were hoping to cash out big at some point. The bankruptcy deal gave them 75 cents on the dollar, unlike the sellers of the loans, who only got 43 cents on the dollar from Indiana. If Chrysler had gone Chapter 7 because of the intransigence of these Indiana pension funds, the funds would certainly have netted less than 75 cents.

Fiat invented common rail diesel technology, which now is used on half of European cars, and then sold it to Bosch. They have now invented Multiair, an equally industry changing technology for spark ignition engines. Keep in mind that hybrid technology is a methodology, not an end. The goal is to reduce energy consumption. If a Fiat 500 Multiair can produce the equivalent of Prius level fuel economy and also provide Mini like performance at half the price of either, that's a winning formula that cash strapped buyers will be very interested in.

Fred it doesnt matter. What this did was remove the use of secure debt from the picture. That means bluntly the car companies and likely others can never use that kind of debt ever again. End of discussion.

What exactly did the secured creditors get?
They got a few bucks from the sale of the assets to the new company, right? That was what their priority as secured creditors yeilded. Most of the other creditors (and shareholders) got considerably less.

The secured creditors also got a chunk of the new company, which is a gamble with uncertain returns at this time, but has more upside than any other option would have had for the secured creditors. That's why they took the deal. Given that, it is at best premature to say no unionized company will ever get secured credit again.

Sounds like a lot of confused rationalization going on.

"If Chrysler had gone chapter 11."
If?
They did NOT go to chapter 11.
So.
The question remains; what justified moving unsecured creditors above the secured in this situation.

What I understand is that the yield secured creditors did get, was not what they were legally entitled to.

Secure just means you are the top of the heap. Warrants are even higher on the list. Neither means that you will never lose a penny and always get back your principle with interest, no matter what.

What we have here is a failure to communicate.
I don’t think ANYONE here has asked even once, why the secured investors did not get ALL their money back.
The question remains;
What justified moving unsecured creditors above the secured in this situation?
Or if you like; Why they were not higher in the heap, than the non-secured?

Right Toppa:

Saying warrants are higher or something else is lower is interesting but I can't see that it addresses any issue.

Ditto about secured not meaning you never lose money. True. Did someone say otherwise?

But it never hurts to restate the basics.

In a big BK very little is automatic. The legal priorities may be well known but each party normally wants to leave with money not priorities. So well secured creditors may trade their lower risk for something riskier which offers higher future returns.

The big quarrel and alarming trend in this Chrysler BK is that the biggest secured creditors were banks with TARP money. And every single one of them liked the BK plan. Some feel the government forced them to do so.

The secured creditors that were not TARP recipients tended to reject the BK plan. But O and others in D.C. raged about their obstructionism and more and more fell into line.

Finally only a few secured creditors objected. But BK is a weighing of interests, it does not have a guaranteed outcome, and a BK judge wasn't going to derail this massive plan to help a few small stakeholders.

All in all this is hardly one drop of rain upon capitalism. How many will follow?

“In the case of GM, the bondholders likely will get 10% of the common stock in the reorganized company for the $27 billion they are owed. The UAW will get $10 billion in taxpayer cash, plus 17.5% of the new company's common stock, $2.5 billion in bonds, and $6.5 billion in new preferred stock, paying a 9% dividend, all for the $20 billion it is owed. (WSJ.com 6/1/09) In the case of Chrysler, the bondholders will get $2 billion in cash for the $6.9 billion they are owed, with no equity. The UAW will get 55% of the new company, for "forgiving" $6 billion in promised retiree health care-really, just unsecured debt that would have been in second place in a proper bankruptcy. (WSJ.com 5/1/09).”

It is not the problem that secure debt holders (the debt guaranteed by property of the company) are getting less for their dollar. The problem is that they are getting much less than UAW, which is unsecured debt holder and should get a hike, like equity (shares) holders do.

The worse part is that this breach of BK law is facilitated by US government and is ignored by Supreme Court.

Note that the Supreme Court's decision was not binding as precedent. Chrysler's "secured" creditors getting paid after the unsecured was a clear breach of contract, but I believe the Court, realizing the political power behind the move-- UAW, new President, Congress-- let this water over the dam. Rightly, however, they don't want that choice to have any bearing generally as doing so would negate all secured creditors' rights.

It's true, too, though, as someone observed, that if there had been no intervention/bailout, the secured creditors might not do much better with a bankrupt company.

You can blame the UAW and its political influence. I just read some in Congress seek to keep all the dealerships going, and some to restore product liability suits. In a real bankruptcy, all that stuff is void, end of story. So, yes, this "bankruptcy" was very unconventional and legally questionable, and might be about to get even more ridiculous. But wiping out shareholders and screwing some secured creditors only to keep product liabilities, dealer and labor contracts is not a recipe for progress. Add to it management interference by Congressmen and it's starting to sound pretty backward. My vote now would be to just let them go under.

The workers have given their lives over the years working on the lines. The bond holders may have held a discount purchased bond for a week or so. I think the workers are the true stakeholders.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Green Car Congress © 2017 BioAge Group, LLC. All Rights Reserved. | Home | BioAge Group