Bankruptcy judge to set Chrysler future

UPDATED:

Chrysler LLC filed for an unprecedented, White House-sponsored bankruptcy Thursday, presenting a test for the nation’s economy and judicial system as the administration tries to ram a politically brokered deal through a New York bankruptcy court in 60 days.

President Obama, trying to save union jobs and benefits while promoting a new generation of “green” cars, said he was prepared to spend an additional $8 billion to try to reorganize the company in a way that leaves much of it intact but shifts control into the hands of unions, the government and Italian carmaker Fiat through a new alliance. Chrysler’s owners are bowing out, and its top creditors have accepted a $2 billion buyout, leaving only a few dozen hedge funds and other investors as holdouts on the deal.

The first court hearing is Friday morning and will likely offer the first clue as to whether the bankruptcy will be the quick, “surgical” one portrayed by the Obama administration.

Judge Arthur Gonzalez is scheduled to hear the first motions, which typically allow a company to continue paying workers and basic utility costs as it restructures.

Eventually, Judge Gonzalez will have to sort out the key issue that made bankruptcy necessary: the creditors that hold $6.9 billion of the Chrysler’s debt.

The bankruptcy of the storied Detroit manufacturer foreshadows an even more ambitious attempt by the White House to reinvent the biggest U.S. automaker, General Motors, at the end of May. The crisis in the auto industry, the core of the Midwest’s once-mighty manufacturing base, comes at a critical time for the economy when it was showing tentative signs of recovery.

“We’re in uncharted territory. There’s no way to know how this is going to work,” said James Blanchard, former Michigan governor and Democratic congressman who shepherded through Congress Chrysler’s first federal bailout - a $1.5 billion loan in 1979. That effort helped the company founded in 1925 by Walter Chrysler stay in business for 30 more years.

“I’m hopeful this pre-packaged bankruptcy will be short and sweet, and Chrysler and its workers can move ahead,” Mr. Blanchard said. “The president has done everything he can to try to make this work.”

Mr. Obama emphasized that the plan is designed to minimize disruptions at the automaker’s plants and showrooms while slimming down and modernizing the company so it can compete in the market for small, fuel-efficient cars where Chrysler has been largely absent in the past.

Chrysler will gain the small-car technology from Fiat, which will gain a 20 percent share of the company that eventually could increase to 35 percent once government loans are repaid. Union health care funds will control 55 percent of the reorganized company, and U.S. and Canadian governments will acquire 10 percent of the company in exchange for loans.

The Canadian government is providing the company with $2 billion in loans to supplement the $8 billion that the White House estimates that it must provide to shepherd the company through a quick bankruptcy as the company’s “debtor in possession.”

“I’m supporting Chrysler’s plans to use our bankruptcy laws to clear away its remaining obligations so that the company can get back on its feet and on to a path of success,” Mr. Obama said. “It’s a partnership that will save more than 30,000 jobs in Chrysler and tens of thousands of jobs to suppliers, dealers and other businesses that rely on this company.”

Despite the president’s pledge not to “disrupt the lives of people who work at Chrysler,” however, the company announced that is shutting down production at all its plants for the duration of the bankruptcy, which the White House hopes will last one to two months.

Mr. Obama vilified the handful of hedge funds and other lenders who declined to take 30 cents on the dollar for their loans, forcing the company into bankruptcy. Mr. Obama called them “speculators” and said he was determined to defeat them in court.

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