The Obama administration is convinced there is just one way for Chrysler to survive -- bankruptcy -- so it can shed billions of dollars in liabilities. (Bill Pugliano / Getty Images)
The Obama administration says the bankruptcy of Chrysler LLC should not affect "ordinary" operations of Detroit's No. 3 automaker.
But Day One of Chrysler's Chapter 11 era was anything but ordinary -- two top Chrysler executives said they will leave, nervous suppliers refused to ship parts and Chrysler said it will shutter most plants during bankruptcy and disclosed plans to close six U.S. factories as part of its restructuring, including three in Metro Detroit by 2010.
"Once you pull the bankruptcy trigger, there's no such thing as business as usual," said Aaron Bragman, a Troy-based auto analyst with IHS Global Insight.
Chrysler's plan to emerge includes new management, a new board, an Italian partner, a revamped product lineup, less plant capacity, fewer workers and dealers and, potentially, a new name.
An agreement has been signed with Fiat SpA to establish an alliance. The "NewCo" as Fiat and others are calling it, would emerge from bankruptcy in 30 to 60 days shorn of burdensome debt agreements and underperforming dealers, plants and models. A full review of assets has been done and the work must begin Monday, said Chrysler Vice Chairman Tom LaSorda.
"Can they pull it off in 60 days?" Bragman said. "Most experts say no. Six months is more likely."
Already there are casualties.
Chairman Robert Nardelli said he will leave once the restructuring is complete and return to Cerberus Capital Management LP as an adviser. Nardelli said the U.S. Treasury did not ask him to step down. Last month, the government asked Rick Wagoner, former chairman and CEO of General Motors Corp., to leave.
LaSorda, who started the product partnership talks with Fiat a year ago, planned to announce his retirement today, and said he was unlikely to stay through the restructuring.Vice Chairman Jim Press will remain.
The new company will be run by a nine-person board with six independent members appointed by the government and three appointed by Fiat, including an employee. The board will elect a chairman and select a CEO "with the concurrence of Fiat," Nardelli said. The post could be held by Fiat CEO Sergio Marchionne.
Fiat will start with a 20 percent stake, in value and voting rights, in the new company, increasing it to 35 percent as it supplies global distribution and builds small vehicles and engines in the U.S.
The governments of the U.S. and Canada comprise a collective 10 percent stake and an independent health fund trust to be run by the United Auto Workers will hold a 55 percent stake but without equivalent voting rights.
Chrysler is filing "First Day" motions with the court so it can pay workers, suppliers, dealers, and provide incentives to buyers. It expects approvals quickly.
Pension plans will not be terminated and newly negotiated union contracts remain intact.
Chrysler said all plants in the U.S. and Canada will be idled effective Monday. But some nervous major suppliers jumped the gun Thursday and refused to deliver parts without payment.LaSorda said if emergence from bankruptcy takes over 60 days, plants can be returned to duty as needed. More permanent capacity reductions are planned, LaSorda said, and hourly employee buyout offers have been extended to May 25.
According to court documents, the six plants to be closed include Sterling Heights Assembly Plant, Detroit Axle and the Connor Avenue plant, also in Detroit. Sterling Heights and Detroit Axle are to be leased back to Chrysler until they close by December 2010, according to court documents.
The three other operating plants to close are St. Louis North, Kenosha Engine in Indiana and Twinsburg Stamping in Ohio.
The financial documents disclose that Chrysler plans to cut its marketing budget by 50 percent.