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Chrysler Files for Bankruptcy; Reaches Agreement with Fiat for New Company; Fiat Percentage Ownership Tied to Fuel-Efficiency Targets

Chrysler LLC has been unable to obtain the necessary concessions from all of its lenders which would have avoided the need for a bankruptcy proceeding. As a result, under the direction of the US Treasury, Chrysler LLC and 24 of its wholly-owned US subsidiaries today filed voluntary petitions under Chapter 11 of the US Bankruptcy Code in US Bankruptcy Court for the Southern District of New York.

Chrysler has also reached an agreement in principle to establish a global strategic alliance with Fiat SpA to form a new company. It would allow Chrysler and Fiat to fully optimize their respective manufacturing footprints and the global supplier base, while providing each with access to additional markets. Fiat powertrains and components would also be produced at Chrysler manufacturing sites.

Chrysler will file a motion under Section 363 of the Bankruptcy Code requesting the swift approval by the Court of the agreement with Fiat and the sale of Chrysler’s principal assets to the new company. The benefit of this type of filing is speed. Chrysler hopes this will allow a leaner new company to emerge in a matter of 30 to 60 days.

Fiat cannot become a majority owner until after all US government loans have been completely repaid. When the transaction is completed, the Voluntary Employee Beneficiary Association (VEBA) will own 55% of the new company and the US and Canadian governments will own proportionate shares of a 10% stake. Fiat will initially hold a 20% ownership stake in Chrysler. Fiat will have the right to increase its ownership stake an additional 15% in three increments as it meets the following criteria:

  • 5% for bringing a 40 mpg vehicle platform to Chrysler to be produced in the US;
  • 5% for providing a fuel-efficient engine family to be produced in the US for use in Chrysler vehicles;
  • 5% for providing Chrysler access to its vast global distribution network to facilitate the export of Chrysler vehicles.

As a part of the restructuring, most manufacturing operations will be temporarily idled effective 4 May 2009. Normal production schedules will resume when the transaction is completed, which is anticipated within 30 to 60 days.

Bob Nardelli, Chairman and CEO of Chrysler since August 2007, also announced to Chrysler LLC’s Board of Management and the US Treasury his plan to leave the company following the emergence of the new company from Chapter 11 and the completion of the alliance with Fiat. He will return to Cerberus Capital Management LP as an advisor.

We want to personally assure everyone 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. Chrysler employees will become employees of the new company. Chrysler dealerships remain open for business serving our customers. All vehicle warranties will be honored without interruption and consumers can continue to purchase our vehicles with complete confidence.

—Bob Nardelli

During the restructuring process, the government will provide sufficient debtor-in-possession (DIP) financing to allow continuation of “business as usual.”

...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 those 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.

—Bob Nardelli

Chrysler’s Mexican, Canadian and other international operations are not part of any bankruptcy filing.

As part of the restructuring and with the backing of the US Treasury, Chrysler reached an agreement in principle with GMAC to become the preferred lender for Chrysler dealer and consumer business. GMAC will be able to offer the best long-term finance options for Chrysler dealers and customers with standard rate installment products.



I think this will be a much more harmonious and profitable relationship vs. long as they can stay away from bizarre styling, underpowered cars, inflated mileage claims, and poor quality vehicles (that feel cheap) - I think they'll be fine.


I suppose it isn't relevant whether the U.S. market *wants* either a 40mpg platform, or a family of fuel-efficient engines.

Account Deleted

VEBA is controlled by the union so the restructured Chrysler will be run by the union by a 55% stake and a 20% government stake. Personally I don’t recall a single commercial company in the world that is great and that is run by unions.

The Fiat deal may help them and I am glad that A123 get a really good opportunity to start mass producing batteries for electric cars. That will enable A123 to prove their abilities and it may get them other large customers. Still I am afraid that Chrysler will lose market share from now on and will be gone in ten years or so.

Chrysler’s most important problem was its high labor costs and that will still persist plus they have got a new problem which is that they in all likelihood will get even worse management.

I wish them good luck they will need it.


31 days GM


According to the Detroit News the UAW will not have a majority of votes on the board of directors even though they will own 55% of the equity. We will probably know who will be on the board by Friday evening.


One of the original predictions when Cerberus bought Chrysler was that they would break them up and sell them off. Cerberus said that they would not and I guess you could say that they were true to their word.


Where does the +15% equity Fiat can obtain come from?

Also, does the US Government get paid interest on the loans, plus the 10% equity? Could the US divest in 5 years and make a decent return?

Will Chrysler make more money from selling Jeeps in Italy, or from selling 500's in the US?

How much more competitive does the labor structure get for Chrysler, now?

The one bit of optimism in this is that the people running Fiat have been pretty ballsy in making a lean, mean, targeted business. Maybe they will have the agility to do things other car manufacturers won't.

Will S

It appears that the only question remaining is "will there be 4 or 5 Fiat models being built in the US?"


The board of directors for the reorganized Chrysler will be composed of nine members, six chosen by the Treasury Department and three chosen by Fiat.


I'm guessing right now the first true Fiat model that will be built in the USA is the Nuova 500 three-door hatchback.

Which ironically could actually make it possible for Ford to sell the Ka subcompact in the USA. Why? The Nuova 500 and Ka are built off the same platform, and as such if Fiat wants to justify the expense of converting a Chrysler factory to build the Nuova 500 they may have to also build the Ka for Ford to sell in North America to help pay for the retooling costs.


"does the US get interest plus 10% equity?"
They get to pour more money in and get nothing.

"Could US divest in 5 years and make a decent return?"
Three chances of that; Slim, Fat and None.

"I think they'll be fine."
They are fine now. Because, well, it doesn't get any better than this. At least it won't.

"I suppose it isn't relevant whether the U.S. market *wants* either a 40mpg platform, or a family of fuel-efficient engines."
Yup. Only a pure heart and building cars we WANT people to buy, are relevant.

"Chrysler’s .. . new problem .. even worse management."

One down, two to go.


old toppatom cannot help himself to post his negativity. Everyone is dumb and toppatom is so smart. He would't know a Fiat if it ran over him but he can still judge. So far his only solution to the american car manufacturing business is to fire all of the workers, abolish the unions and rehire people at $4 per hour.

I went to a Fiat dealer today and they have many great cars for 7-10k Euro. I am optimistic that the american consumer will buy these cars. If I could get a $10k 500 I would buy one immediately... they are cooler looking than the Mini.

I have friends that I grew up with working at the Fenton plant and if they don't have cars to build they will have nothing to do other than maybe part time work at Wal Mart. Anyone who says too bad... the workers are greedy and they make too much... and they deserve what they get... can go to hell in my opinion.


This may take a while, but i think Chrysler has a chance, remember that Fiat itself survive d a crisis a few years ago and now it is in far better position than GM who was running away that time.
I think the idea is not what cars does the US market want, it is already saturated, but what cars does the WORLD want from U.S. Chrysler's market share outside U.S could grow significantly, and the same can be with the local market, if they can make the people discover those pocket rocket cars they have never seen.. while still giving good mileage.

Will S

I suppose it isn't relevant whether the U.S. market *wants* either a 40mpg platform, or a family of fuel-efficient engines.

When gas goes above $4 again in the near future, the market will be screaming for them. It doesn't pay to stick our head in a hole and pretend oil will stay at the same level.

The IEA warns of shortages - "The next oil crisis is coming" - Energy Bulletin

Oil, Gas May ‘Slingshot’ Up After Credit Freezes Rigs - Bloomberg

fred schumacher

The key is not in selling cars that get good fuel economy; the key is selling cars that cost less. The biggest part of ownership cost is amortization and interest. The world wide financial crisis is starting to change consumer behavior. People no longer want to carry the debt load they had in the past. They no longer want to be saddled with seven and nine year loan periods.

A Fiat 500 Multiair can equal the Prius in fuel economy at half the cost; it can equal the driving feel of a Mini at half the cost. If Fiat-Chrysler can sell a Fiat 500 at $10,000 and make a profit, they'll be a wild success. Remember, Chrysler always made a profit on the Neon. It crashed and burned on a product mix forced on it by Daimler.


Union run or managed or own manufacturing plants can only compete against grossly mismanaged plants such as the current GM.

The proposed new Chrysler (with Fiat participation) will not be able to compete against Toyota, Honda, Hyaundai etc and will be a complete failure in USA within 5 years and even before.

What a waste of public $$$ in both USA and Canada.

Letting Chrysler go could give a fair (better) chance for Ford (and a smaller GM?) to survive.

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