Saturday, May 2, 2009
Chrysler expected to sell assets to Fiat
NEW YORK – Chrysler LLC is expected to file a motion Saturday to sell substantially all of its assets to Italian automaker Fiat Group SpA, but the ailing automaker must still deal with creditors who refused to come to a deal to erase the company's debt.
Attorneys for Chrysler say eight plants will not be affected by the sale, including five that the automaker revealed it will shutter by the end of next year.
While Chrysler faced its first hearing Friday in Manhattan bankruptcy court, court documents showed the Big Three automaker planned to close plants in Michigan, Missouri, Ohio and Wisconsin that employ about 4,800 people. Chrysler said they will be offered jobs at other plants.
The company also announced President and Vice Chairman Tom LaSorda is retiring effective immediately.
Judge Arthur Gonzalez approved a series of motions at Friday's hearing, launching a chain of events designed to ensure Chrysler's bankruptcy process is the quick and "surgical" one the company and the U.S. government have promised.
But what could prove to be the case's biggest challenge still lies ahead. Chrysler must eventually deal with creditors who defied government pressure to wipe out the automaker's debt and might have helped the company avoid a bankruptcy filing in the first place.
Another hearing was scheduled for Monday, where Chrysler attorneys will ask Gonzalez to let the company start using $4.5 billion in loans from the U.S. and Canadian governments to keep operating under bankruptcy protection.
Chrysler, the nation's third-largest car manufacturer, filed for bankruptcy protection Thursday. The company plans to emerge in as little as 30 days as a leaner, more nimble company, with Fiat potentially becoming the majority owner.
In return, the federal government agreed to give Chrysler up to $8 billion in additional financing, on top of the $4 billion the company already has received.
Chrysler attorney Corinne Ball said that lawyers on Monday would ask to set a date for the first hearing on the sale of its assets to the "new Chrysler." In bankruptcy, assets are sold in a two-part process during which the court asks for competing bids. None are expected in Chrysler's case, since documents show the company already tried to form alliances with dozens of companies, including Nissan-Renault, Toyota, Honda, Volkswagen and even rival General Motors Corp.
Heidi Sorvino, bankruptcy partner at Smith, Gambrell & Russell LLP, said a sale could be completed in 30 to 60 days.
"I think the sale will happen quickly," she said. "The actual proceeding is going to take a long time."
Until the deal with Fiat closes, the automaker plans to idle all of its plants in the U.S. Chrysler's Canadian assembly plants also halted production Friday because of parts shortages stemming from the U.S. shutdown.
In court documents, Chrysler said it won't keep its Sterling Heights, Mich., plant that makes Chrysler Sebrings and Dodge Avengers, and the Conner Avenue plant in Detroit that makes Dodge Vipers. The St. Louis North plant that makes Dodge Ram pickups would also close.
Chrysler's Twinsburg, Ohio, parts stamping plant and Kenosha, Wis., engine plant will also be shuttered.
Two other plants that will be left out of the Fiat sale are the St. Louis South plant and an assembly plant in Newark, Del., that were idled last year. Another facility, Chrysler's Detroit Axle plant, is already scheduled to be replaced by a new factory near Port Huron, Mich.
The "new Chrysler" would lease the eight plants, then shutter them by December 2010.
"While some facilities may close, substantially all Chrysler employees will be offered employment with the new company," Chrysler spokeswoman Dianna Gutierrez said. "Employees currently located at a facility identified for disposition will be offered a position at one of the facilities sold to the new company."
Gonzalez approved Chrysler's motion to allow the automaker to pay $48.8 million in employee and contract worker pre-bankruptcy wages, benefits and businesses expenses. The motion also references an estimated $86 million in employee vacation benefits that it may not ultimately have to pay.
The judge also approved Chrysler's motions that will let it continue to honor its warranties and continue its current banking practices.
It's uncertain when Gonzalez will face objections from the creditors that hold $6.9 billion of the automaker's debt.
Four banks holding 70 percent of the debt agreed to a deal that would give the lenders 29 cents on the dollar. But a collection of hedge funds refused to budge, saying the deal was unfair because they deserve to recover more than other creditors like the United Auto Workers.
President Barack Obama on Thursday chastised the funds for seeking an "unjustified taxpayer-funded bailout" after Chrysler and his auto task force cleared the company's other hurdles, including the Fiat deal and a cost-cutting pact that the UAW ratified this week.
Chrysler's bankruptcy filing is the latest step in a drastic reordering of the American auto industry, which has been crushed by higher fuel prices, the recession and customer tastes that are moving away from the gas-guzzling SUVs that were once big money makers.
The government already has sunk about $25 billion in aid into Chrysler and GM.
GM faces its own day of reckoning on June 1, a date the administration has set for it to come up with its own restructuring plan. GM has announced thousands of job cuts, plans to idle factories for weeks this summer and has even offered the federal government a majority stake in the company as it races to meet the deadline.
Like at Chrysler, debt may be the stumbling block. GM has asked its unsecured bondholders to exchange $27 billion of debt for a 10 percent stake in the automaker. The creditors balked, saying that would leave them with just pennies on the dollar and that they deserve a majority stake if they give up their claims.