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Chrysler succumbs to bankruptcy after struggle
(Agencies)
Updated: 2009-05-01 08:55 In exchange, Fiat would initially get 20 percent of the company, but its share could rise to 35 percent if certain benchmarks are met, and Fiat said Thursday it could get an additional 16 percent by 2016 if Chrysler's US government loans are fully repaid. Fiat would also get access to the North American market through Chrysler factories and dealerships. Fiat CEO Sergio Marchionne said he planned to spend time meeting Chrysler employees and touring its plants over the next few weeks. He said Fiat was preparing for Chrysler to "re-emerge quickly as a reliable and competitive automaker." Fiat also plans to reintroduce brands like Alfa Romeo in North American markets.
The Treasury Department's auto task force had been racing for the past week to clear the hurdles that led the government to reject Chrysler's initial survival plan one month ago. Along with the Fiat deal, Chrysler adopted a cost-cutting pact with the UAW on Wednesday. Four of the largest banks holding 70 percent of Chrysler's debt agreed this week to a deal that would give them $2 billion. But a collection of hedge funds refused to budge, saying the deal was unfair and would only return a small fraction of their holdings. When the hedge funds refused a sweetened offer Wednesday, Chrysler and the government resorted to bankruptcy. Obama chastised the funds for seeking an "unjustified taxpayer-funded bailout." One lender, OppenheimerFunds Inc., said it rejected the government offer because it "unfairly asked our fund shareholders to make financial sacrifices greater than the sacrifices being made by unsecured creditors."
Later Thursday, one of the hedge funds that had been a holdout issued a statement agreeing to the offer. "We believe that this is in the best interests of all Chrysler stakeholders, and our own investors and partners," said the statement from Perella Weinberg Partners. The fund said it was working "to encourage broad participation in the settlement." The White House said Chrysler could comes out of "surgical" bankruptcy in 30 to 60 days. Under normal circumstances, it would be difficult to complete such a large bankruptcy so quickly. But John Pottow, a University of Michigan professor who specializes in bankruptcy, said the government's level of involvement is much greater than a typical corporate bankruptcy. "If you have the president of the United States who wants something to happen, I think anything's possible in bankruptcy protection," he said. The Fiat deal and bankruptcy cap a disastrous time for Chrysler. The Auburn Hills, Mich.-based company lost $8 billion last year and its sales through March were down 46 percent compared with the same period last year, leading some auto industry analysts to question whether Chrysler can survive even in bankruptcy. But company executives told reporters Thursday that Chrysler vehicles with Fiat's fuel-efficient technology should reach showrooms in 18 months. Vice Chairman Jim Press said Chrysler has cut expenses to operate profitably at a lower sales volume, and he said it would be able to take advantage of Fiat's distribution network to sell more vehicles globally. Also, the company has new products coming out such as the new Jeep Grand Cherokee, which debuts in early 2011. Press said the company predicts that small-car sales will rise dramatically around the time the Fiat products hit the US market. "The real volume pickup opportunity for smaller cars is going to start to ramp up about two years from now," he said. Despite the turmoil with Chrysler and GM's looming deadline, Obama urged consumers to keep buying cars. "If you are considering buying a car, I hope it will be an American car," he said.
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