Workers leave Chrysler's Jeep assembly plant in Toledo on Friday, taking home an early holiday gift with President George W. Bush's offer of $17.4B in short-term loans. (Madalyn Ruggiero / Associated Press)
In addition to restructuring, federal loans for embattled automakers such as Chrysler LLC can be used to buy time for an orderly bankruptcy, President George Bush said Friday.
"These loans will provide help in two ways. First, they will give automakers three months to put in place plans to restructure into viable companies, which we believe they are capable of doing," Bush said in his televised address to the nation.
"Second, if restructuring cannot be accomplished outside of bankruptcy, the loans will provide time for companies to make the legal and financial preparations necessary for an orderly Chapter 11 process that offers a better prospect of long-term success and gives consumers confidence that they can continue to buy American cars," Bush said.
Automakers and the president have warned that a bankruptcy filing by any of Detroit's automakers would lead to a liquidation of that company, but the loan money can now be used to protect against "having the industry explode," said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
Even with federal aid, there are concerns Chrysler can't survive as a standalone company, and this could open the door to a merger with General Motors Corp., Cole said.
"It would not surprise me to see an orchestrated combining of GM and Chrysler," he said. "We won't know until this thing plays out."
Chrysler is considered the most vulnerable of Detroit's automakers, even with $4 billion in federal aid that is expected to arrive Dec. 29.
That became more evident Friday when two more high-profile executives left the company.
"Their organization is being leaned out dramatically," Cole said, adding that the departures make it easier for the company to be bought. "This is a huge step in getting into a place where they can probably be absorbed by someone else."
GM did not ask the government for the provision to make preparations for bankruptcy, said CEO Rick Wagoner. "It was in the terms sheet that we received. We didn't ask for it to be in there."
Wagoner said GM's "focus is really to do this restructuring out of court," citing the oft-repeated reason that consumers would be reluctant to buy a new vehicle from an automaker in Chapter 11, which would have the result of forcing the company into liquidation.
"It's there, but it's not something we intend to, or plan on, using," Wagoner said of the Chapter 11 option.
Nor does he expect to use the money to renew merger talks with Chrysler. Wagoner said GM's focus is on executing its plan "over the next 90 days and beyond" to meet the terms set out by the government.
Chrysler is not in merger discussions with GM, said Chrysler spokeswoman Shawn Morgan. Nonetheless, Cole and others do not write off the idea of the two automakers combining -- an idea that also gained traction with some key members of Congress.
In a letter to employees Friday, Chrysler CEO Robert Nardelli said Chrysler will be accountable for the $4 billion.
The loan will help ease concerns of suppliers who earlier this week were called to a meeting by Chrysler to assure them the company will remain solvent and to ask suppliers not to seek changes in payment terms. Nardelli said Friday suppliers will be asked to remain patient pending receipt of the loan.
Cerberus Capital Management LP, Chrysler's parent company pledged in a statement to use the first $2 billion in profits that Chrysler Financial makes to guarantee the loan to the carmaking side of the business.
The private equity firm has pledged to forgo any profits Chrysler derives as a result of the bridge loan, and Cerberus said Friday it will give up some of its equity in Chrysler if that helps convince other stakeholders such as the union or suppliers to make concessions.
"Unless Chrysler's labor costs can achieve parity with the foreign transplants, and without the restructuring of Chrysler's debt, Chrysler cannot be restored to long-term health and the government loan will be unlikely to be fully repaid," Cerberus said in a statement.
Meanwhile, Chrysler continues to downsize everything from inventory to executives.
Following Friday shifts, all 30 assembly, engine and transmission plants in the U.S., Canada and Mexico closed for a minimum of a month. On the executive side, four key leaders have left or will soon, all in the span of one week. Effective immediately, Deborah Meyer, vice president in charge of marketing, is leaving to pursue other interests, the company said. Meyer was brought on board from Toyota Motor Corp., amid great fanfare, shortly after Nardelli took the helm. Departing at the end of the year is Asia chief Philip Murtaugh. Chrysler said sales and marketing for the region now falls to Michael Manley, executive vice president of international sales and global product planning operations, who will oversee the region from Auburn Hills.
Morgan said the loss of Murtaugh should not be construed as a downsizing of Chrysler's already limited international breadth, nor is it related to the recent dissolution of a partnership with Chinese automaker Chery Automobile Co. to make small Dodge cars.
Earlier in the week, Simon Boag, senior vice president of parts and service, left the company to pursue other interests, days after supply chief John Campi left for health reasons.