Chrysler’s transformation from bankruptcy to a new company owned by Fiat, U.S. and Canadian taxpayers and UAW retirees, whose health care benefits could shrink in coming years, has been approved by U.S. Bankruptcy Judge Arthur Gonzalez.
A $2-billion cash payment to about 45 banks and investments funds who will forgive $6.9 billion in loans, and at least $8.9 billion in aid to Chrysler has come from U.S. taxpayers. At least $4 billion of that money will not be repaid.
“The economic reality is that no one was willing to lend other than these governmental entities,” Gonzalez wrote in his opinion. “In the current economic climate, the only alternative would be an immediate liquidation, which the evidence has shown would not bring a higher return to creditors.”
The sale’s closing, now slated for June 15, could be delayed, however, as lawyers for three Indiana pension funds, hustle to file an appeal at a federal court literally blocks away from the bankruptcy court in Lower Manhattan
But it will take a bold and contrarian ruling from U.S. District Court Judge Thomas Griesa to knock Chrysler and Fiat from their path out of Chapter 11 bankruptcy.
The fate of 789 dealers is still uncertain. Judge Gonzalez will give them another hearing June 4. How much Chrysler owes all critical suppliers is not fully resolved. But Gonzalez’s approval validated the strong-arm strategy of President Barack Obama’s auto task force with brought Chrysler and Fiat to the altar.
Throughout three days of testimony, Chrysler’s retired Vice Chairman Tom LaSorda described his efforts over 18 months to discuss potential partnerships with Nissan, Chery Automobile of China, General Motors and Fiat.
“The fact is no one was willing to give us a penny,” LaSorda said.
LaSorda and Chrysler Chairman and CEO Bob Nardelli also pushed hard for Chrysler to remain an independent company with government support. But Steven Rattner and Ron Bloom, the leaders of President Barack Obama’s auto task force deemed that option inviable.
Rattner and Bloom, by the end of March, said it would either be an alliance with Fiat or liquidation.
“The hard-fought ‘take it or leave it’ approach that often drives the outcome of this type of negotiation is troubling to some, but such is the harsh reality of the marketplace,” Gonzalez said. “Moreover, the debtors’ CEO (Nardelli) testified that the demands from (the government) were not greater than that presented by other lenders, and in some aspects were not as onerous.”
Not all of Chrysler moves to the new company. Eight factories, including the Sterling Heights, Mich., (Chrysler Sebring and Dodge Avenger) and Detroit (Viper) assembly plants and Detroit Axle, will be sold or closed.
Proceeds from such asset sales will go to repay some of the $4.9 billion in taxpayer assistance Chrysler has received since its April 30 bankruptcy filing.
Fiat will be protected from any product liability lawsuits arising from alleged flaws in Chrysler vehicles sold prior to the sale’s closing later this month. Anyone filing such lawsuits will only be able to recover from the limited assets of the old company.
Fiat did agree to assume responsibility for workers compensation insurance in any states where the new company has operations such as Michigan, Indiana, Ohio and Illinois.
“The new company will be a vibrant and competitive auto company,” Nardelli said. He will leave Chrysler when the sale closes and go back to work for Cerberus Capital Management, the private equity fund that hired him to run Chrysler in August 2007.
“It will begin operations with significant strategic advantages, including a wage and benefit structure for active and retired employee that is competitive with those of transplant (Toyota, Honda, Nissan) manufacturers,” Nardelli said.
(c) 2009, Detroit Free Press. Source: McClatchy-Tribune Information Services.