Chrysler is bankrupt. To a British ear that sounds pretty stark, but in the US it means something rather different – ‘chapter 11 bankruptcy‘. It will keep operating, but it will be able to fend off its creditors and try to renegotiate its debts.
In Chrysler’s case, the US Government wanted to force 46 major creditors to accept £2.25 billion in cash if they agreed to write off $6.9 billion in debt. Most of the 46 agreed, but some (mostly hedge funds) have been holding out for more and in the meantime Chrysler’s rate of loss means it will become worth less than it owes: bankrupt.
Chrysler boss Bob Nardelli has quit. Well he wasn’t a car man anyway – he came from a DIY chain. Most plants will be shut for the next month.
So what now? Well, as is US practice Chrysler will keep trading. Question is, who’ll want to trade with it. Would you buy a car from a bankrupt company? In an effort to provide reassurance, the US The Government has said it’ll back warranty claims.
The Obama administration wants to get Chrysler out of bankruptcy in a few weeks, officials say. Then they will start making cars again. They hope long-term viability should be helped by using bankruptcy to bat away the creditors, shed underperforming dealers and get out from some unfortunate contracts.
Meanwhile, the Fiat deal is signed. Fiat will be protected from Chrysler’s debts, and isn’t putting in any of its own money, but gets 20 percent of Chrysler. It will take a few years to get small Fiat-based Chryslers launched in the US, but it will eventually give Chrysler a more balanced range.
Of course, by that time the US could be coming out of recession and I doubt that newly prosperous US buyers will be wanting so many millions of baby eco-cars…
However, if Fiat gets into long-term alliance with Chrysler it might give both of them the size-muscle they currently lack. Certainly the Fiat boss Sergio Marchionne has said he wants to be part of something bigger, and that’s why he’s also not brushing away reports of a deal with Opel-Vauxhall. Though he refuses, so far, to confirm them either.
So Fiat will have some control over Chrysler. So will the healthcare trust of the United Auto Workers union, which owns more than half of the remaining stock. That’ll make wage bargaining interesting – effectively the union will be negotiating with itself. And already the workers have made big concessions.
The Government also has an element of control because of the bankruptcy process, and because it will appoint some directors. But it promises to stay hands-off. This isn’t nationalisation. As President Obama said yesterday at his 100th-day press conference: ‘I don’t want to run auto companies, and I don’t want to run banks. I’ve got two wars I’ve got to run already – I’ve got more than enough to do.’