Article published June 10, 2009
Fiat closes deal to take Chrysler’s good assets
FROM BLADE STAFF AND NEWS SERVICES
DETROIT — Italy’s Fiat is the new owner of the bulk of Chrysler’s assets, closing a deal Wednesday that saves the troubled U.S. automaker from liquidation and places a new company in the hands of Fiat’s CEO.
The deal clears the way for a new, leaner Chrysler Group LLC to emerge from bankruptcy protection minus billions in debt, 789 underperforming dealerships and burdensome labor costs that nearly sank the storied automaker.
Fiat CEO Sergio Marchionne immediately was named CEO of the new company, which said in a statement that it would soon reopen Chrysler factories that were idled during the bankruptcy process, costing the automaker $100 million per day.
The new company will focus on smaller vehicles, areas in which Chrysler was weak.
“Work is already under way on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler’s hallmark going forward,” the new company said in a statement.
The Italian automaker won’t put any money into the deal but will give Chrysler billions worth of small car and engine technology.
“We intend to build on Chrysler’s culture of innovation and Fiat’s complementary technology and expertise to expand Chrysler’s product portfolio both in North America and overseas,” Marchionne said in a statement.
The sale to Fiat SpA marks a victory for the Obama administration, which shepherded Chrysler into Chapter 11 protection on April 30 with the hope that the company would emerge in a matter of months with a new partner.
A senior administration official said last week that Marchionne will make management changes in short order. Chrysler CEO Bob Nardelli is stepping down while Vice Chairman Tom LaSorda already has retired.
The official did not want to be identified because the changes have not been made public.
On Tuesday, Chrysler won its battle to erase its secured debt after the Supreme Court declined to rule on objections to the sale to Fiat from a trio of Indiana pension and construction funds. The Indiana funds, which hold less than 1 percent of Chrysler’s $6.9 billion in secured debt, claimed the sale unfairly favors Chrysler’s unsecured stakeholders such as the union ahead of secured debtholders like themselves.
Supreme Court Justice Ruth Bader Ginsburg decided Monday to delay the sale while studying the appeals. But on Tuesday, the court turned down the opponents’ last-ditch bid by declining a hearing on the appeals.
Also on Tuesday, Judge Arthur Gonzales approved Chrysler’s motion to terminate 789 of its dealer franchises, or about 25 percent of its dealer base.
Many of those dealers closed their doors for good on Tuesday, though some will continue to sell used cars or other brands. Chrysler has maintained that the closures are a necessary part of its plan to cut costs. Jim Press, Chrysler’s vice chairman and president, told a Senate committee that the poor performance of many of the dealers slated to lose franchises costs the company $1.5 billion in lost sales each year, along with $150 million in advertising and marketing costs and $33 million in administrative costs.
The dealers had argued that they cover their own costs and little would be gained by terminating their franchises. Chrysler attorneys said the automaker would extend until Monday its program to help the affected dealers send any unsold vehicles to stores that will remain open.
Chrysler’s swift passage through about five weeks of bankruptcy proceedings was helped by the involvement of the Obama administration’s auto task force, which provided billions in financing and helped negotiate a deal with the company’s stakeholders.
Under the agreement brokered in the days leading up to Chrysler’s Chapter 11 filing, Fiat will receive up to a 35 percent stake in the automaker in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.
The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake. Fiat would get 20 percent, with the possibility of up to 35 percent.
Meanwhile, the automaker’s secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some debtholders, including the Indiana funds, balked at the deal, saying as secured lenders they deserved more. The funds also challenged the constitutionality of the Treasury Department’s use of money from the Troubled Asset Relief Program, or TARP, to supply Chrysler’s bankruptcy protection financing. They say TARP was earmarked for the financial industry and diverted to the auto industry without Congressional authority.
Consumer groups and individuals with product-related lawsuits also contested a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the asset sale to Fiat. Compensation for such claims would have to come from the parts of the company not being sold to Fiat. But those assets have limited value and it’s unlikely there will be anything to pay out.
The story as it appeared in earlier editions of The Blade and toledoblade.com:Chrysler sale to Fiat clears legal hurdle
NEW YORK — The Supreme Court last night cleared the way for Chrysler’s partnership with Italy’s Fiat, rejecting an appeal by Indiana pension and construction funds, consumer groups, and others to block the automaker’s sale.
The sale of Chrysler LLC’s assets to Fiat Group SpA had been expected to close more than a week ago, but Supreme Court Justice Ruth Bader Ginsburg’s Monday decision to delay the sale while studying an appeal by the Indiana state funds threatened to derail Chrysler’s restructuring plans.
A federal appeals court in New York had approved the sale, but it gave opponents until Monday afternoon to try to get the Supreme Court to intervene.
The Indiana funds, which hold less than 1 percent of Chrysler’s secured debt, argued that the sale unfairly favors Chrysler’s unsecured stakeholders such as the union ahead of secured debtholders such as themselves.
Justice Ginsburg ordered a temporary delay just before a 4 p.m. deadline on Monday.
Chrysler, Fiat, and the Obama Administration warned that the high court’s intervention could scuttle the sale, which faced a June 15 deadline after which Fiat could exit the arrangement.
If the closing were delayed by more than 10 days, the government would need to either “increase its overall funding to the detriment of taxpayers or abandon its role in the transaction,” the administration said.
Last night, the Supreme Court turned down the opponents’ last-ditch bid.
Toledo Mayor Carty Finkbeiner said he was delighted by last night’s news, feeling that the efforts of Indiana pension funds and other creditors were self-serving and working against the general good.
“It is time to give those companies an opportunity to get back on their feet,” he said.
He was hopeful last night, he said, that the greater Toledo area will benefit from the proposed transitions of both Chrysler and General Motors Corp., in part because the region has modern factories.
| LOOKING AHEAD |
| Chrysler now appears able to complete the sale to Fiat by Monday and emerge from bankruptcy. Chrysler attorneys said the firm would extend until Monday its program to help the affected dealers send unsold vehicles to other dealers. |
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“Fantastic!” the mayor said of the court decision. “I am elated.”
Bruce Baumhower, president of United Auto Workers Local 12, said, “Obviously we’re very happy and looking forward to getting out of this mess and building cars again.”
He said he had anticipated yesterday’s announcement and hadn’t been terribly worried when Justice Ginsburg ordered a temporary delay Monday.
“My gut told me [Monday] she just needed to sleep on it,” Mr. Baumhower said.
Joseph Phillippi, principal of AutoTrends Consulting based in New Jersey, said yesterday’s announcement led him to assume that the court did not have the support for a delay to look further into the issues surrounding the Chrysler-Fiat agreement.
He said many legal issues that typically would be considered at length in the courts have been brushed aside in this case. And he predicted that the GM case will move just as rapidly.
“This clears the deck for the obvious pending sale of old GM to new GM,” he said, adding that if there were to be a delay, those opposing the Chrysler-Fiat deal appeared to have a stronger case than the dealerships that will lose in the proposed GM transition.
The court issued a brief, unsigned opinion explaining its action.
To obtain a delay, or stay, someone must show that at least four of the nine justices find that the issue raised is serious enough to warrant hearing a full appeal and that a majority of the court will conclude the lower court decision was wrong. “The applicants have not carried that burden,” the court said.
The court did not consider the merits of the opponents’ arguments, only whether to hear their full-blown appeal.
Greg Knudson, vice president of technology with the Regional Growth Partnership, said Monday’s delay had left him worried.
He said he considers the marriage of Chrysler and Fiat a great way for the auto industry to move forward, but disagreements and delays along the way could hurt their image in the minds of the buying public.
“I just think it’s absolutely crucial they move ahead. They cannot lose momentum,” he said.
The White House issued a statement applauding the decision.
“The Chrysler-Fiat alliance can now go forward, allowing Chrysler to re-emerge as a competitive and viable automaker,” the White House said.
Meanwhile, a bankruptcy judge approved Chrysler’s plan to terminate 789 of its dealer franchises.
U.S. Judge Arthur Gonzalez’s order says the franchises, which represent about 25 percent of the company’s dealer base, can no longer act as authorized Chrysler, Dodge, and Jeep dealers, effective immediately.
Earlier in the day, more than 25 attorneys representing hundreds of dealers from across the country argued in court that little would be gained by terminating the franchises, while Chrysler maintained that the move is necessary to cut costs and quickly emerge from Chapter 11.
Denny Amrhein, owner of Grogan’s Towne Chrysler Dodge Jeep in Toledo and Charlie’s Dodge in Maumee, said earlier of the planned takeover of Chrysler by Fiat, “I think it’s going to be good for all the dealers that are left.”
“I think within a year, year and a half, I think you’ll see a lot stronger Chrysler,” he said.
Under the agreement brokered in the days leading up to Chrysler’s April 30 Chapter 11 filing, Fiat will receive up to a 35 percent stake in the automaker, in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.
The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake.
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