MAY 1, 2009
Chrysler goes into Chapter 11
The Chrysler Corporation, one of America's Big Three car companies, has filed for Chapter 11 bankruptcy after failing to reach an agreement with its creditors. The news means that Fiat could end up owning the business. US President Barack Obama, who has been overseeing the situation in recent weeks, said that the period of administration will be short. The company will be restructured by a court in New York. Many of the companies creditors had agreed to take a fraction of the money owed to them but a number refused to compromise. The danger of Chapter 11 is that the uncertainty over the future will affect the company's already poor sales. If all goes to plan the manufacturing parts of the empire will be sold to a new company, which will then emerge from administration without any debts or obligations to its employees. The majority shareholding in this new company would be the Voluntary Employee Benefit Association, which looks after healthcare and pensions for former Chrysler employees. Fiat is expected to get 20% but that may increase to 35% if targets are met and the company has an option to take control of the business once the US loans are repaid. This will open the way for Fiat products to be sold in the US for the first time since 1982. The US government will still own 8% of the new firm. The company will shut down its vehicle operations in the interim and this could mean trouble for parts suppliers that rely heavily on the big firms. Chrysler's chief executive Bob Nardelli has resigned and president Tom LaSorda is to retire. It remains to be seen what will happen with the company's motorsport programmes. In the interim there will be no major effect with the NASCAR teams continuing to use Dodge chassis. Once the restructuring is completed the new company will almost certainly want to continue with its Sprint Cup programme to keep up a presence in the markets. All eyes will now turn to General Motors, which has a month to come up with a realistic plan to restructure. If this is not acceptable to the US government GM may follow Chrysler into Chapter 11.