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Chrysler to Shut Down Most Manufacturing Operations While Bankruptcy Proceeds

Production halts this Monday, May 4, and only resumes when the New Chrysler emerges from the court proceedings.

by on Apr.30, 2009

Tom LaSorda, Chrysler Vice Chairman and President, left, and Bob Nardelli, Chairman and CEO, will leave Chrysler.

Tom LaSorda, Chrysler Vice Chairman and President, left, and Bob Nardelli, Chairman and CEO, will leave.

Chrysler LLC today announced that, as a result of the comprehensive restructuring plan agreed to by many of its stakeholders, it has reached an agreement in principle to establish a global strategic alliance with Fiat SpA to form a new company. 

Unfortunately for workers, the company also filed for bankruptcy at a Federal court in New York City. During the bankruptcy proceedings, which are expected to last from 30 to 60 days, most of its manufacturing facilities will be closed. It is only when the New Chrysler emerges from bankruptcy that production will gradually resume. Workers will be eligible for supplemental unemployment benefits, worth about 80% of pay. Some additional plant closings are anticipated.

Chrysler already has a relatively low inventory as a result of previous cutbacks. The decision does not restrict Chrysler’s ability to reopen the plants if buyer demand warrants. Nonetheless, this is a severe blow to suppliers, who are also under pressure from GM’s announcement last week to take its plants down for 90 days.

“Even though total agreement was not possible, I am truly grateful for all that has been sacrificed, on the part of many of Chrysler’s stakeholders to reach an agreement in principle with Fiat,” said CEO and Chairman, Bob Nardelli. “My number one priority has been to preserve Chrysler and the thousands of people who depend on its success. While I am excited about the creation of the global alliance, I am personally disappointed that today Chrysler has filed for Chapter 11. This was not my first choice. “ 

Things didn’t work out so well for Nardelli, as previously predicted, and even though he was singled out for praise by the Administration today. “Chrysler’s management, and in particular, its CEO, Robert Nardelli, have played a positive and constructive role throughout this process,” President Obama said. (more…)

U.S. Treasury Moves Forward with Chrysler Bankruptcy and Fiat Partnership!

President makes tough decisions to move forward with the agreement of major stakeholders.

by on Apr.30, 2009

"It is unaceptable to let a small group of

"It was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else.

The failure of some of Chrysler LLC’s creditors to agree to a debt-for-equity swap, tested President Obama’s patience for a month, but not his resolve or his readiness to save the once proud Michigan automaker from oblivion, and give it what he said would be a “new lease on life.”

So the President agreed with the recommendations of his Auto Task Force and directed that Chrysler LLC enter into bankruptcy under Chapter 11, section 363, in a Federal District Court in New York City, which is vastly experienced in such matters. The bankruptcy was filed today.

New Chrysler will emerge “stronger, and more competitive,” the President said.  No further job cuts are anticipated at this time. If all goes well, more jobs will ultimately be created.

The “alliance” with Fiat will create the sixth-largest global automaker, spreading R&D and design development costs over higher volumes, making it more competitive in an increasingly global and consolidating industry.

Fiat is contributing billions of dollars in advanced technology and intellectual property, and offering Chrysler access to its global distribution network.  Fiat’s technology will allow Chrysler to build new fuel-efficient cars and engines in North American factories.

The “appropriate level of shared sacrifice” was not achieved, so Chrysler will go through what is termed a “surgical, short bankruptcy in order to finish the restructuring of its balance sheet and  emerge with as a properly capitalized company that could be competitive,” a senior administration official said in a background briefing that participated in.

Chrysler’s largest secured creditors have agreed to exchange their portion of the Company’s $6.9 billion secured claim for a pro-rata share of $2 billion in cash at closing. The Bankruptcy Court will be used to impose this treatment on those lenders that failed to accept the offer, which was accepted by a majority of the lenders.

The President lambasted hedge funds and speculators looking for “unacceptable” taxpayer subsidies.

During the 30 to 60 days the bankruptcy is predicted to take, Chrysler will function normally, suppliers will be paid and people will be able to finance and purchase vehicles because of funding from the U.S. and Canadian governments. Funding  is being provided on about a $3:C$1 ratio, reflecting the highly integrated nature of Chrysler’s operations on both sides of the border.

Employees will get paid, including salary, wages and ordinary benefits.  Workers compensation claims will continue to be paid by Chrysler’s insurers.  Assuming the sale moves forward as expected, Pension Plan and VEBA funding will be transferred to the purchaser. (more…)

Virtually all UAW Members Ratify Chrysler Settlement Agreement. President Obama Speaks at Noon About the Company’s Future

Only bondholders remain in the way of a last minute reprive of the company.

by on Apr.29, 2009

"Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve U.S. manufacturing jobs and gives Chrysler a chance to survive."

"Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve U.S. manufacturing jobs and gives Chrysler a chance to survive."

UAW members at Chrysler have overwhelmingly ratified a settlement agreement with Chrysler, Fiat and the U.S. Treasury that will allow the restructuring of the ailing company to go ahead.

The remaining obstruction to a reorganized Chrysler this morning are hedge funds that hold its virtually worthless secured debt. The four largest banks, holding 70% of the debt have already agreed to the proposed swap, but it appears that all of the bondholders must go along, and small ones are refusing to do so.

The funds are expected to try and hold out until the last possible minute – midnight tonight – of the deadline imposed by the Auto Task Force. But President Obama is due to speak at noon today, an indication that the administration is willing to act forcefully and move on. If agreement is not reached by then, the U.S. government is prepared to put Chrysler in receivership and provide funding until Chrysler’s assets can reassigned to a new company that would then go on.

With the approval of a new contract, union workers are putting their jobs on the line, saying they are willing to take the risk that a new, new Chrysler can survive and ultimately thrive.

Eighty-two percent of production workers, and 80% of skilled-trades workers voted for the agreement in balloting that took place at UAW Chrysler locations throughout the United States. Ninety percent of office and clerical workers voted in favor of the agreement, and 94% of UAW-represented Chrysler engineering workers voted for approval.

“This has been a challenging time filled with anxiety and uncertainty for our membership,” said UAW President Ron Gettelfinger. “Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve U.S. manufacturing jobs and gives Chrysler a chance to survive.”

UAW Vice President General Holiefield, who directs the union’s Chrysler Department, said: “Once again, UAW members have stepped up to the plate and acted responsibly. If other stakeholders will join us in making difficult sacrifices, Chrysler will have a chance to rebuild and participate in the eventual recovery of the U.S. vehicle market.” (more…)

Chrysler Deadline Met or Just Chrysler is Dead?

Chrysler working to the bitter end (beginning) to meet Treasury's demands for continued aid.

by on Apr.29, 2009

Once again financial speculators on Wall Street will determine Main Street's fate.

Financial speculators on Wall Street will determine Main Street's fate.

It all comes down to bondholders of $6.9 billion in debt. Chrysler LLC, in the latest version of its restructuring plan, wants to give them $2 billion in cash and shares in a restructured company.

Bondholders are balking, though, and it apparently requires the agreement of almost all of the 46 financial institutions and hedge funds that hold its virtually worthless debt at current trading prices to prevent a bankruptcy.

Chrysler, late yesterday, reached a tentative agreement to an equity swap with its four largest banks that hold 70% of its debt.  But it isn’t clear, if that is enough to force the 42 others to fold. As of this evening, Chrysler was still waiting to hear if  it will be forced into bankruptcy tomorrow by the  U.S. Treasury Department Auto Task Force.

Neither the President and Vice President would confirm a bankruptcy today, and the Treasury Department appears to be using the uncertainty, and media leaks about getting reading for a filing, as a cudgel to force the bondholders to relent.

“I am very pleased that principal banks have reached a deal with Chrysler to restructure the company’s debt so it can achieve viability.  A month ago when I first wrote to the CEOs of Chrysler’s major debtholders they were not even at the table, so this is a very positive development,” said Rep. Gary Peters (D-Michigan), who has been prodding the banks to negotiate with Chrysler. “The remaining debt holders should understand that this deal is better than what they could expect in bankruptcy and I encourage them to accept this fair offer,” he said.  

All the other pieces of the restructuring are basically in place. The Canadian Auto Workers Union and the United Auto Workers Union have cut their labor and benefit costs. By accepting stock for its health care fund, the UAW will end up with 55% of the new company, if ratification of the  revised agreement by members comes through tonight as expected. (more…)