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Chrysler filed for bankruptcy protection
Thursday and will form an alliance with the Italian carmaker Fiat
Group SpA in an effort to revive the nation's ailing third-largest
automaker.


      The Obama administration said it had long hoped to stave off
bankruptcy, but it became clear that a holdout group of creditors
wouldn't budge on proposals to reduce Chrysler's $6.9 billion in
secured debt. Clearing those debts was a needed step for Chrysler
to restructure by a government-imposed Thursday deadline.


      "No one should be confused about what a bankruptcy process
means," President Barack Obama said in a midday announcement.
"This is not a sign of weakness but rather one more step on a
clearly chartered path to Chrysler's revival."


      Chrysler filed for Chapter 11 bankruptcy protection in New York
on Thursday with the hopes of emerging in as little as 60 days
under the new partnership with Fiat. The government, which has
already poured $4 billion in loans into Chrysler, would provide up
to $8 billion more to carry the company through bankruptcy, said
senior administration officials speaking on condition of anonymity.
The government will also help appoint a new board of directors.


      The deals give Chrysler "a new lease on life," Obama said.


      "This is not a sign of weakness," he said. "I have every
confidence that Chrysler will emerge from this process stronger and
more competitive."


      Under bankruptcy, Chrysler would still sell cars and the
government would back its auto warranties. But Chrysler said
Thursday that it will idle its plants during the legal proceedings.
The company's chief executive, Robert Nardelli, said he will leave
when the bankruptcy is complete.


      When that occurs, the Auburn Hills, Mich.-based automaker would
end up owned by the United Auto Workers union, the U.S. government
and Fiat. The Canadian and Ontario governments, which are also
contributing financing, would have small stakes.


      But Fiat, which the Obama administration hopes can jump start
Chrysler with its fuel-efficient and lower-emission technology,
could end up the majority stakeholder. Fiat would initially get 20
percent, a share that could rise to 35 percent if certain
benchmarks are met. Fiat said Thursday it could get an additional
16 percent by 2016 if Chrysler's U.S. government loans are fully
repaid.


      Obama said Chrysler Financial, the arm of the company that makes
loans to buyers and to dealers to finance their inventories, will
be merged into GMAC Financial Services, once General Motors Corp.'s
finance arm. The new GMAC will get government support. Chrysler's
base of dealers would also be pared down.


      The Treasury Department's auto task force has been racing in the
past week to clear the major hurdles that prevented Chrysler from
coming up with a viable plan to survive the economic crisis
ravaging nation's automakers.


      Along with the Fiat deal, the UAW ratified a cost-cutting pact
Wednesday night.


      Treasury reached a deal earlier this week with four banks that
hold the majority of Chrysler's debt in return for $2 billion in
cash.


      But the administration said about 40 hedge funds that hold
roughly 30 percent of that debt also needed to sign on for the deal
to go through. Those creditors said the proposal was unfair and
they were holding out for a better deal.


      "I don't stand with them," Obama said.


      A person briefed on Wednesday night's events said the Treasury
Department and the four banks tried to persuade the hedge funds to
take a sweetened deal of $2.25 billion in cash. But in the end,
this person said most thought they could recover more if Chrysler
went into bankruptcy and some of its assets were sold to satisfy
creditors. This person asked not to be identified because details
of the negotiations have not been made public.


      On Thursday, a group of funds identifying themselves as 20 of
Chrysler's "non-TARP lenders" released a statement saying they
had been sidelined during negotiations between lenders and the
government. The group, which said it holds $1 billion in Chrysler
debt, complained that the four banks were "obviously conflicted"
because they had accepted money from the government's Troubled
Asset Relief Program while they had not gotten TARP money.


      The group said its offer to the Treasury Department to reduce
its claim to 40 percent was "flatly rejected or ignored."


      Fiat is getting its stake in Chrysler for giving the company
access to its fuel-efficient technology, a move toward cleaner cars
that the Obama administration thinks is critical to Chrysler's
future survival. The company has committed to building Fiat cars in
Chrysler factories, to be sold as Chryslers.


      Obama's auto task force in March rejected Chrysler's
restructuring plan and gave it 30 days to make another effort,
including a tie-up with Fiat.


      Chrysler's bankruptcy filing said it owes more than $10 million
apiece to 20 of its unsecured creditors, many of whom are vendors
and suppliers.


      At the top of that list were: Ohio Module Manufacturing Co.
($70.3 million), BBDO Detroit Inc. ($58.1 million), Johnson
Controls Inc. ($50.3 million), Continental Automotive ($47
million), Cummins Engine Co. ($43.9 million) and Germany-based
Germersheim Spare Parts ($36.2 million).

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Business and Economic News

Chrysler filed for bankruptcy protection
Thursday and will form an alliance with the Italian carmaker Fiat
Group SpA in an effort to revive the nation's ailing third-largest
automaker.


Chrysler files for Chapter 11 bankruptcy

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