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Chrysler Bankruptcy: Central Wrap-Up

A new company has formed out of the bankruptcy of Chrysler, LLC. See details of the new Chrysler-Fiat alliance. This article was not updated after 2009

The history

The Supreme Court delayed the sale of Chrysler by around a day, finally issuing an unsigned, joint opinion dismissing Indiana’s Treasurer’s objection, which was, many believe, politically motivated.

During the process, Judge Arthur Gonzalez, has approved payments to employees and dealers, incentive payments, and honoring of warranties. He dismissed objections to the sale, noting that many had no basis in law. He had set up an open bidding process, and moved the case swiftly and without major controversy.

Chrysler Group will be 20% owned by Fiat, 55% by an employee retirement plan, 8% by the U.S. Treasury, 2% by the Canadian government. The CEO is expected to be Sergio Marchionne, CEO of Fiat.

Fiat’s newly formed auto group will include its share of Chrysler, as well as Fiat, Lancia, and Alfa Romeo. Helping to keep it manageable (and to avoid the morass of bureaucracy and politics that GM became) would be Fiat’s federated approach, similar to that of Johnson & Johnson — the owned companies would co-operate but remain largely independent.

The new Chrysler will be managed by a board of directors consisting of nine directors, three of which will be appointed by Fiat. The VEBA and Canada will each appoint one Director, and the U.S. Treasury will make the initial appointment of four directors (three of whom must be independent). VEBA is expected to sell its 55% share, not necessarily all at once.

The Chair will be C. Robert Kidder (bio), representing the U.S. Treasury. Fiat’s picks are its CEO, Sergio Marchionne; Fiat Powertrain Technologies CEO and Fiat Auto head of business development Alfredo Altavilla; and Lucio A. Noto, former CEO of Mobil from 1994 to 1999. Noto is a board member for Penske Automotive Group, Commercial International Bank, and Philip Morris.


Chrysler will terminate 789 dealerships by June 9. The cuts will result in an estimated 38,000 job losses.

List of Chrysler dealerships losing their franchise (PDF) List of Chrysler dealerships keeping their franchise (PDF)

chrysler dealership

The pictured dealership is not losing its franchise, probably because of its high customer satisfaction.

Due to the bankruptcy, Chrysler did not have to buy back vehicles, parts, or tools from the dealers losing their franchises, but it paired buyers for the dealers losing their franchise. Many are owned by individuals or companies who hold other companies' franchises (e.g. Kia), so the dealerships may not be closed completely, but may be converted to showrooms for competing brands. Toyota is scouting for dealerships that were not placed well for Chrysler, but would serve new Toyota customers.

80% of the remaining dealerships will sell all three brands; and it may be easier now for the remaining 20% to pick up the missing brands by purchasing the necessary inventory, signage, and (in some cases) tools, and by hiring expert mechanics, from dealerships losing their franchise.


Chrysler was the second largest automaker between 1936 and 1949. It was acquired by Daimler-Benz in 1998, and suffered from poor management and lack of investment until being sold to Cerberus Capital Management. A combination of economic, political, marketing, and product issues short-circuited Cerberus' rapid work on correcting Daimler’s mis-handling of Chrysler; and, while the government was glad to lend trillions of dollars to financial institutions, politicians demanded that President Bush, and then President Obama, allow Chrysler and General Motors to go into an unassisted bankruptcy. Bush made interim loans over the objections of his party leaders, and Obama worked on forming deals to preserve Chrysler and GM. Bankruptcy would have been avoided, but three lenders refused to accept the Treasury's deal, which was admittedly draconian.

Bush’s $4 billion in loans may not be fully repaid. Obama’s loans will, as a condition of Fiat gaining any additional equity.

The opposing lenders

The three lenders who originally refused to participate in the deal, sending Chrysler into bankruptcy, were Oppenheimer Funds, Perrella Weinberg Partners, and Stairway Capital.

The self-described “non-TARP lenders” who objected to the deal after the bankruptcy, were Arrow Distressed Securities Fund, Schultze Master Fund Ltd and Apex Master Fund 3000, Stairway Capital Management, L.P., Group G Partners LP, GGCP Sequoia L.P., Oppenheimer Senior Floating Rate Fund and Master Loan Fund, and Foxhill Opportunity Master Fund, LP. They held just 4% of Chrysler’s debt.

On May 7, 2009, the team of opposing lenders broke up, ending their objections — possibly at the request of their own customers. The law firm that represented them found a replacement in the form of Indiana’s Treasurer, who had bought Chrysler debt at a steep discount (less than half the face value); but that lawsuit was dismissed by the district court.

Summary of the core parties’ expectations

The new company will have the Chrysler, Dodge and Jeep brands, and most of Chrysler's current employees. Fiat’s CEO will take over Chrysler and both LaSorda and Nardelli will leave.

The Treasury will provide up to $4.5 billion in exit financing, for 8% of Chrysler’s equity; the Canadian government will provide around $800 million and get 2 percent of Chrysler's equity. $280 million has already been transferred to a program that guarantees Chrysler's warranties, so customers can be more confident in buying cars from a company in bankruptcy.

Chrysler will pay $2 billion to its secured creditors. Its unsecured creditors, who are mainly parts suppliers and the BBDO Detroit advertising agency, may be paid more immediately in some cases but have no guarantee of any payments. Salaried employees might or might not be ordered to take two weeks off without pay.

The top unsecured debtor is Ohio Module Manufacturing, a Hyundai division which supplies Jeep components, and is owed $70 million. Ad agency BBDO Detroit was at #2, with $58 million owed. Many of the top ten debtors are recognizeable to Chrysler fans - Johnson Controls (interior parts), Continental Automotive (electronics, ABS, brakes, and more), Cummins, Visteon, New Process, and Denso. Also included are Comau of Michigan and Germersheim Spare Parts of Germany.

GMAC is now the preferred lender for Chrysler’s consumer loans.

While the attorney for the hold-out creditors valued the VEBA’s share at $10 billion, the head of the UAW pointed out that the equity currently has no real value, and comes in place of contracted obligations to fill the health care fund.

The unsecured creditors

A committee of unsecured creditors has been formed to represent the interests of all the creditors in the proceedings. They were appointed by the U.S. trustee, Diana Adams:

Production and plant closings

The newly renovated Sterling Heights Assembly Plant, which makes the Avenger and Sebring, will be closed in or before December 2010. Conner Avenue, Detroit Axle, St. Louis North, Kenosha Engine, and Twinsburg Stamping will also be closed and sold — most of them by December 2010, but the Viper plant is set to shut down in December 2009. Detroit Axle’s work was already set to move to a new plant in Marysville. Twinsburg was promised continued work, but their stamping will be moved to existing plants. St. Louis North will be closed and their RamBox trucks moved to Warren. Kenosha’s V6 engines are to be replaced by the Pentastar V6.

From Monday, May 4, through the sale of the “good Chrysler assets,” all Chrysler plants were closed. During this period, Chrysler cut its marketing budget by 50%.

Companies covered in the petition

Companies covered in the bankruptcy petition include Chrysler LLC, Chrysler Aviation, three Dutch divisions, the Chrysler Institute of Engineering, three international corporations, Chrysler Motors LLC, Chrysler Realty, the service contracts companies, Chrysler Technologies Middle East, Chrysler Transport, the vans business (Sprinter), Dealer Capital, GEM (electric cars), NEV, Peapod, TPF Asset and Note, and Utility Assets LLC.

Chrysler’s Mexican, Canadian and other international operations are not part of any bankruptcy filing.

Plan for the new company

As per Bob Nardelli:

... Fiat will initially hold a 20 percent ownership stake in Chrysler. Fiat will have the right to increase its ownership stake an additional 15 percent in three increments as it meets the following criteria: 5 percent for bringing a 40 mpg vehicle platform to Chrysler to be produced in the U.S.; 5 percent for providing a fuel-efficient engine family to be produced in the U.S. for use in Chrysler vehicles; and 5 percent for providing Chrysler access to its vast global distribution network to facilitate the export of Chrysler vehicles. Fiat cannot become a majority owner until after all U.S. government loans have been completely repaid.


Though the Cerberus people portrayed themselves as patriots rescuing a great American automaker, Steve Feinberg did not invest his own money to rescue the company from bankruptcy, and tried to link up with numerous Chinese companies. They appear to have been willing to break up Chrysler despite statements that they were keeping the company whole. Tom LaSorda, in his court statements, wrote:

Chrysler sent letters to parties, primarily in China, whom we thought would be potentially interested in purchasing our assets. Over the next two months, several companies, including Beijing Automotive Industry Holding Co., Tempo International Group, Hawtai Automobiles, and Chery Automotive Co., expressed interest in purchasing specific vehicles, powertrains, intellectual property rights, distribution channels and automotive brands.

Rumors surrounding an attempted sale to GM, which would have been disastrous for employees at both companies but would have kept assets in the United States, were true; Bob Nardelli called Rick Wagoner in January 2009 to try to restart the merger. GM was not interested.

LaSorda said that Chrysler tried to form alliances with Nissan, GM, Volkswagen, Tata Motors, Magna, GAZ, Hyundai, Honda, and Toyota. The alliance with Toyota suggested by LaSorda and Jim Press would have had Toyota using Chrysler factories to build new products. Toyota quickly rejected the proposal, as did Honda. Both companies have built their factories on farmland rather than re-using industrial land.

Talks with Nissan started in 2007, as rumored. In 2008, Nissan and Chrysler exchanged term sheets, but Nissan could not get the needed financing. They tried again later in 2008, with executives from both companies, but were unable to nail down financing; in January 2009, Nissan was no longer interested.

Talks with Fiat apparently began in March 2008, and were more fruitful.

Cerberus and Daimler’s going-away presents

Bob Nardelli wrote:

“Cerberus is giving up its equity stake to allow assignment of ownership to other stakeholders, has forgiven a $500 million loan to our company, will provide the Auburn Hills campus to the new company as part of the sale, and is giving up its claims against Daimler. Daimler has agreed to walk away from a $1.5 billion loan to the company, will contribute $600 million to the Chrysler LLC pension fund, and will provide an additional $200 million guarantee to the pension fund after the sale of the company is complete.”

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