Friday, June 12, 2009
Auto Task Force Saved Chrysler-Now Fiat Takes Control
Fiat takes the wheel at troubled Chrysler
The Associated Press
DETROIT — Italy’s Fiat is the new owner of most of Chrysler’s assets, closing a deal Wednesday that saves the troubled U.S. automaker from liquidation and places a new company in the hands of Fiat’s CEO.
The deal clears the way for a new, leaner Chrysler Group LLC to emerge from bankruptcy protection minus billions in debt, 789 underperforming dealerships and burdensome labour costs that nearly sank the storied automaker.
Fiat CEO Sergio Marchionne immediately was named CEO of the new company, which said in a statement that it would soon reopen Chrysler factories in the United States and Canada that were idled during the bankruptcy process, costing the automaker US$100 million per day.
The new company will focus on smaller vehicles, areas in which Chrysler was weak.
"Work is already under way on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler’s hallmark going forward," the new company said in a statement.
The Italian automaker won’t put any money into the deal but will give Chrysler billions of dollars worth of small car and engine technology.
"We intend to build on Chrysler’s culture of innovation and Fiat’s complementary technology and expertise to expand Chrysler’s product portfolio both in North America and overseas," Marchionne said in a statement.
The Chrysler restructuring involved billions of dollars in financial aid from the U.S., Canadian and Ontario governments as well as labour, pension and other cost concessions from the United Auto Workers and Canadian Auto Workers unions.
In Ottawa, Canadian Industry Minister Tony Clement welcomed the sale and emergence of Chrysler from bankruptcy restructuring "in a timely and efficient manner."
"The government of Canada is confident that we will see a competitive Chrysler Canada Inc. that will produce and sell Canadian-made cars and will continue to play an important role in the company’s North American operations," Clement said in a release.
"A restructured Chrysler is good news for the Canadian auto parts supply chain and for Canadian consumers. The company can now focus on producing top quality vehicles that consumers want.
"Moving forward, the government of Canada will continue to work toward strengthening our country’s auto industry, while exercising rigorous oversight over the use of taxpayer money."
The sale to Fiat SpA marks a victory for the Obama administration, which shepherded Chrysler into bankruptcy protection April 30 with the hope that the company would emerge in a matter of months with a new partner.
Marchionne immediately made management changes, including the appointment of vice-chairman and president Jim Press as deputy CEO and adviser to help with the management transition.
Press, formerly top U.S. executive for Toyota Motor Corp., joined Chrysler shortly after it was taken over in 2007 by private equity firm Cerberus Capital Management LP.
In a statement, Marchionne said the organization will be designed to give leaders broad control and increase the speed of decision making.
Chrysler CEO Bob Nardelli bid employees farewell in an email obtained by The Associated Press, while vice-chairman Tom LaSorda already has retired.
Marchionne, in an email to Chrysler employees Wednesday, expressed confidence that Fiat will be able to turn Chrysler around.
He wrote that he stepped into a similar situation five years ago at Fiat, which at the time was perceived as a failing, bureaucratic automaker that made low-quality cars.
Yet most of the people capable of remaking Fiat were there all the time, he wrote.
"We have remade Fiat into a profitable company that produces some of the most popular, reliable and environmentally friendly cars in the world," he wrote.
"We created a far more efficient company while investing heavily in our technologies and platforms. And, importantly, we created a culture where everyone is expected to lead. We can and will accomplish the same results here."
On Tuesday, Chrysler won its battle to erase its secured debt after the Supreme Court declined to rule on objections to the sale to Fiat from a trio of Indiana pension and construction funds.
The Indiana funds, which hold less than one per cent of Chrysler’s US$6.9 billion in secured debt, claimed the sale unfairly favours Chrysler’s unsecured stakeholders such as the union ahead of secured debtholders like themselves.
Supreme Court Justice Ruth Bader Ginsburg decided Monday to delay the sale while studying the appeals.
But on Tuesday, the court turned down the opponents’ last-ditch bid by declining a hearing on the appeals.
Also on Tuesday, Judge Arthur Gonzales approved Chrysler’s motion to terminate 789 of its dealer franchises, or about 25 per cent of its dealer base.
Many of those dealers closed their doors for good on Tuesday, though some will continue to sell used cars or other brands.
Chrysler has maintained that the closures are a necessary part of its plan to cut costs.
Press told a Senate committee that the poor performance of many of the dealers slated to lose franchises costs the company $1.5 billion in lost sales each year, along with $150 million in advertising and marketing costs and $33 million in administrative costs.
The dealers had argued that they cover their own costs and little would be gained by terminating their franchises.
Chrysler lawyers said the automaker would extend until Monday its program to help the affected dealers send any unsold vehicles to stores that will remain open.
Chrysler’s swift passage through about five weeks of bankruptcy proceedings was helped by the involvement of the Obama administration’s auto task force, which provided billions in financing and helped negotiate a deal with the company’s stakeholders.
Under the agreement brokered in the days leading up to Chrysler’s Chapter 11 filing, Fiat will receive up to a 35 per cent stake in the automaker in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.
The United Auto Workers union will get a 55 per cent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 per cent stake.