The first building block of Chrysler LLC’s sale to a partnership with Fiat moved ahead Monday as a judge approved up to $4.5 billion to keep the company alive in bankruptcy, even as hourly and salaried workers and dealers of the company will sacrifice even more than in the next two months.
Details in Chrysler’s filing reveal that during the temporary shutdown, salaried workers will be furloughed without pay for two weeks and hourly employees will get 75 percent of their regular pay ? meaning the company will be paying one-third of it what it previously paid.
In New York, a small group of Chrysler creditors called the Fiat deal “patently illegal,” suggesting how government’s “quick rinse” of Chrysler in bankruptcy could become a slow bath.
Still, U.S. Bankruptcy Judge Arthur Gonzalez approved the government help.
Additionally, the company will stop reimbursing one-quarter of its 3,200 dealers for rebates, and slash incentive spending by 50 percent beginning June 1.
The court filing describes how Chrysler will get by until the end of June. Other filings disclosed that Chrysler lost $16.8 billion last year and is burning through $1.7 billion of cash each month.
At a press conference in Sterling Heights, Mich., United Auto Workers President Ron Gettelfinger said workers will receive about 75 percent of regular pay, but added, “It’s certainly not a paycheck.”
Chrysler went into bankruptcy with about $660 million in cash, of which it can spend $400 million to pay suppliers for parts delivered over the last 45 days, reimburse dealers for warranty costs and other essential expenses approved by Gonzalez. The company must maintain a minimum cash balance of $260 million.
Robert Manzo of Capstone Advisory Group, Chrysler’s restructuring consultant, said the U.S. Treasury had a “low likelihood” of being repaid the $4.5 billion Chrysler will borrow while bankrupt. He also said the loan was made on far better terms than what Chrysler could have received from private lenders.
If the reorganization is completed with Fiat taking a 20 percent stake in Chrysler, Manzo estimates that the new company could be profitable by 2012 and earn up to $3 billion by 2016.
U.S. Bankruptcy Judge Arthur Gonzalez issued orders Monday that free up cash for Chrysler to pay suppliers for parts delivered over the last 45 days and reimburses dealers for warranty costs.
The additional worker and dealer sacrifices come after the UAW agreed last week to accept stock in a reorganized Chrysler in lieu of cash payments to pay for a retiree health care fund, called a VEBA, and freeze wages through September 2010.
Hourly retirees have worried that their health care benefits may be cut.
“This VEBA is going to be on life support initially,” Gettelfinger said, “but if (Fiat Chief Executive) Mr. (Sergio) Marchionne comes in here and turns this company around, then we will be in good shape.”
(c) 2009, Detroit Free Press. Source: McClatchy-Tribune Information Services.