Chrysler files for bankruptcy
By Michael Rowland for AM
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Updated
Carmaker Chrysler has declared itself bankrupt after failing to secure a deal with its growing army of creditors, but the US Government is confident the company will rise from the ashes.
The Obama administration had given the company until later today to come up with a viable business plan and rid itself of nearly $10 billion of debt.
But it was not to be and Chrysler has become the first big US carmaker to go into bankruptcy.
President Barack Obama paid tribute to Chrysler's rich history and its role in helping build and transport America's middle class.
But he also said the Government could not afford to waste any more money trying to keep the company afloat.
"It's been a pillar of our industrial economy, but frankly a pillar that's been weakened by papering over tough problems, and avoiding hard choices," he said.
"For too long Chrysler moved too slowly to adapt to the future, designing and building cars that were less popular, less reliable, and less fuel efficient than foreign competitors."
Bankruptcy does not necessarily spell the end for Chrysler.
It will still be able to make and sell cars while working to consolidate a new alliance with Italian automaker Fiat.
Importantly, bankruptcy will protect Chrysler from creditors, including many large hedge funds, who have been refusing to sign up to a restructuring deal.
Mr Obama hopes a Chrysler-Fiat partnership will ensure the American car giant's future, but automotive analyst Erich Merkle is not so sure.
"History would show that alliances really don't work that well, even though, no matter how good they may look on paper," he said.
"Paper's one thing, implementing in the real world becomes a much more difficult task."
Chrysler is one of America's oldest car companies, but has always been its most troubled.
Since being founded more than 80 years ago the company has had a number of near-death experiences.
It had its first brush with bankruptcy in the late 1970s, and has always struggled to compete with its larger rivals.
David Hyde is an automotive historian who has written a book on Chrysler called Riding the Rollercoaster.
"When Chrysler has a new line of cars fail, it may send the company right to the brink of bankruptcy," he said.
"When that happens with Ford or General Motors, yes it's uncomfortable, but they get through it."
With Chrysler now bankrupt, attention is turning to the fate of General Motors.
Its restructuring deadline falls at the end of the month.
The American auto company Chrysler filed for bankruptcy Thursday, however a deal with European auto maker Fiat went through. The emerging Chrysler will be owned 55 percent by the United Auto Workers, eight percent by the United States Government, two percent by the Canadian Government and Fiat would begin with a 20 percent share.
US president Barack Obama
Chrysler Chief Executive Robert Nardelli will step down when the bankruptcy proceedings are finalized.

Initially, the Italian company, Fiat, will appoint three members on the emerging Chrysler's new board, and the United States government will appoint six. Fiat can assume the majority of the ownership upon repayment of American loans.

Chrysler administrators expect that the bankruptcy should take a couple of months.

"We expect this to be a very short, 30-to-60-day bankruptcy process, during which the company will function normally," a top administration official said, "People will be able to buy cars, they will have their warranties honored, and everything should go on normally." 

The bankruptcy filing indicated that Chrysler was in debt to 20 creditors to a tune of more than $10 million each.

Meanwhile, the deal with Fiat did go through, and Chrysler should have cars designed by Fiat out on the market by 2011.

"It's a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry," said American president Obama, "Fiat has demonstrated that it can build the clean, fuel-efficient cars that are the future of the industry."

However, automotive analyst Erich Merkle has hesitations.

"History would show that alliances really don't work that well," Merkle said, "even though, no matter how good they may look on paper."

The restructuring has been managed by Steve Rattner, a former investment banker, and the U.S. Government auto task force.

Obama has set three ultimatums before Fiat. Fiat should produce a 40 mile per gallon vehicle while managing the new Chrysler, transfer fuel efficient Fiat technology to Chrysler factories in the United States, and produce cars in Chrysler factories and distribute them in Europe.