President Obama said Thursday the U.S. government has forged a broad bankruptcy deal for Chrysler, which includes the Treasury Department loaning the struggling automaker up to $8 billion as it merges with Fiat.
Mr. Obama said the deal gives the automaker “a new lease on life” and assured Americans that they will still be able to purchase and service their Chryslers.
He also said the partnership with Fiat has a “strong chance at success.”
“For too long Chrysler moved too slowly to adapt to the future,” the president said. “We simply cannot keep this company or any company afloat with tax dollars.”
Robert Nardelli, Chrysler’s chief executive officer since August 2007, said shortly after Mr. Obama’s announcement that he will leave when the company emerges from Chapter 11 and completes its alliance with Fiat.
“Now is an appropriate time to let others take the lead in the transformation,” said Mr. Nardelli, who will return to Cerberus Capital Management LP as an adviser. “I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance.”
The Treasury will give the new Chrysler up to $4.7 billion in loans, which will have to be repaid with interest within eight years.
The loans will be secured by a lien on all Chrysler assets. The Treasury also will give about $3.3 billion in “debtor in possession financing” during the bankruptcy, which brings the total to $8 billion.
“This process will be quick, it will be efficient,” the president said. “It will not disrupt the lives of people who work at Chrysler. It will not affect the ability of the American consumers to buy a Chrysler or to have it repaired.”
The Canadian government also will loan money to Chrysler.
Negotiations to keep Chrysler out of bankruptcy failed over night when a group of hedge funds that hold about 30 percent of the Big Three automaker’s debt would not make concessions.
The fund operators reportedly did not want to accept 30 cents for every dollar owed, thinking they could do better in bankruptcy.
Chrysler and the federal government had concessions from banks that hold about 70 percent of the debt. In addition, the automaker had concessions from labor unions and a merger agreement with Italian automaker Fiat — requirements from the federal government to avoid bankruptcy.
“I’m disappointed with what I think was seven hedge funds simply [having] refused to be a part of the deal,” said Sen. Harry Reid, Nevada Democrat. “They will be part of the deal now. They’ll have no choice.”
The federal government has over the past several months poured more than $17 billion into Chrysler and General Motors to help them through the recession.
General Motors has until June 1 to submit a restructuring plan to the administration’s auto task force.
Ford Motor Co., the third of the Big Three, has not needed a federal bailout. The company on April 24 reported a net loss of $1.4 billion for the first three months of 2009 but said it likely has enough cash to avoid taking a federal bailout and foresees breaking even in two years.
As part of the deal that was ratified late Wednesday, Chrysler will have a new board of directors.
The White House said the Treasury will receive 8 percent of the equity of the new Chrysler and be able to select four of the directors. The Canadian government will receive 2 percent equity.
The board would be made up of chief executive officers or other business-type professionals, White House officials said.
Fiat will not retain the majority control of the company until Chrysler repays the government.
“At the end of the day, this is about the stakeholders — the employees, the shareholders, the bond holders — coming together to find a way to save Chrysler and GM without more taxpayer bailouts,” said House Minority Leader John Boehner, Ohio Republican.
“Washington can prod. I’ve certainly prodded the auto companies for some time, but they have to do this. Nobody’s going to do it for them. And in the case of Chrysler, if that takes actually filing a bankruptcy proceeding, so be it,” Mr. Boehner said.
The White House called the Chrysler-Fiat alliance one of “shared sacrifice” and said Fiat is contributing “billions of dollars” in technology and intellectual property to help develop more fuel-efficient automobiles that will move the company toward a more innovative, successful future.
German automaker Daimler will give up its stake in Chrysler and pay a larger portion of the health-care benefits for its retired workers.
There are no plans for immediate job cuts or plant closings that would affect Chrysler’s 35,000 workers, but Fiat will be reviewing the workforce.
White House officials said Chrysler over time will reduce the number of dealers selling the cars nationwide, though most will continue.
Under the agreement, GMAC will provide loans in place of Chrysler Financial. The U.S. government may give GMAC money for the loans, but those details have not yet been negotiated.
The White House said the United Auto Workers union has “made important concessions” on wages, benefits and retiree health care. Officials said the automaker’s largest lenders have agreed to exchange their claim in exchange for cash at the end of the bankruptcy.
“This is a good day for Chrysler, for Michigan and its workers,” said Rep. Candice Miller, Michigan Republican. “I applaud President Obama and his auto task force for doing the difficult work of bringing together so many disparate interests and forging a positive consensus. … But the most praise needs to go to Chryslers workers who have made continued painful concessions.”
The bankruptcy will be filed in New York because the court there has experience moving things through quickly.
Bankruptcy judges likely will recognize the broad support among most of the involved entities.
• Joseph Weber, Kara Rowland, S.A. Miller and Sean Lengell contributed to this report.
• Christina Bellantoni can be reached at firstname.lastname@example.org.
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