Chrysler recovery threatened by delay

Bloomberg

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Chrysler LLC should leave bankruptcy in a month or two with a slimmed-down balance sheet, new management, a global partner, fewer dealers, lower labor costs and maybe even a new name.

If a quick bankruptcy is successful, it will accomplish many of the things executives for the automaker have been trying to do for decades. None of it guarantees success because the new

Chrysler still has to sell cars, as well as pickups, Jeeps and minivans. Its U.S. sales are down 46 percent this year.

The automaker and the U.S. government plan to use a surgical bankruptcy to sell Chrysler’s best assets, such as its Dodge Ram pickup, to a new company with streamlined costs and debt, which would team up with Fiat SpA. The alliance would create the world’s sixth-largest car manufacturer and in turn the new company would also bring some of Fiat’s small cars to the U.S.

"Chrysler and Fiat have formed a partnership that has a strong chance of success," U.S. President Barack Obama said Thursday. The filing for protection from creditors would give the company "a new lease on life," he said.

"It’s a partnership that will save more than 30,000 jobs at Chrysler and tens of thousands of jobs at suppliers, dealers, and other businesses that rely on this company," Obama said.

Lenders hold out
It appeared Chrysler might escape bankruptcy as recently as April 29, after four major lenders holding 70 percent of $6.9 billion in secured debt agreed to a $2 billion cash offer to eliminate their claim. A group of investment funds in the 46-lender group held out, turning down a sweetened $2.25 billion offer from the U.S. Treasury, which Obama said forced the filing.

In bankruptcy, Chrysler will ask Judge Arthur Gonzalez to allow the sale of its assets with the consent of the majority of the creditors’ claims, forcing the dissident lenders to come along.

Those creditors intend to object to the company’s reorganization plan, a person familiar with their thinking said. That might thwart Obama’s goal of finishing a bankruptcy within 60 days to put a viable carmaker quickly into the market.

Chrysler’s lead lawyer, Corinne Ball, 55, of New York-based Jones Day, is said to be a brilliant strategist, capable of reaching agreements with opponents.

"It has the potential to be good," said Jim Hall of 2953 Analytics in Birmingham, Michigan. "The question is: What is Chrysler going to be able to do between now and when the Fiat products are available?"

The first Fiat vehicle built in the U.S. with a Chrysler brand hood ornament is 18 months away, said Tom LaSorda, a company president who announced his retirement Thursday in a call with reporters. Chrysler has a stream of new cars it developed on its own expected next year in the U.S., including a new Jeep Grand Cherokee and Chrysler 300 sedan.

Long before Fiat’s cars will be riding on U.S. roads, the Turin, Italy-based automaker’s management will be running the company. A new nine-member board of directors will be created with three chosen by Fiat. The board will choose a new chief executive officer to replace Bob Nardelli after the bankruptcy when he returns to owner Cerberus Capital Management LP.

Nissan Alliance
Fiat’s stake may cost Chrysler an alliance with Nissan Motor Co., Japan’s third-largest carmaker. Nissan said it was reviewing the terms of agreement to build small cars for

Chrysler in exchange for pickups from the U.S. company. The two companies had struck the agreement last year to broaden their product offerings without incurring extra development costs. Chrysler will get $8.08 billion in loans from the U.S. government and $2.42 billion from Canada and Ontario. The UAW itself doesn’t have any stake in the company. The trust is run by an independent board, said a senior Obama administration official.

After bankruptcy, Chrysler’s finance company will be GMAC LLC. Its current lending arm Chrysler Financial will continue to service existing loans and gradually wind down its operations.