Chrysler's 'new lease on life'

WASHINGTON - President Obama shepherded Chrysler L.L.C. into a historic bankruptcy yesterday, backed by more than $8 billion in new government aid designed to allow a partnership to emerge in 30 to 60 days.

The move, supported by the United Auto Workers and Chrysler's major lenders, signals to bondholders at General Motors Corp. that the Obama auto task force would act on its vow to take GM into a similar bankruptcy if they do not agree to swap their GM debt for shares in a reworked GM.

Obama emphasized yesterday that the move was meant to secure Chrysler's future and a return on the government's investment, and that it was the best route to preserve jobs at the third-largest U.S. automaker. But as part of the plan, Chrysler said most of its factories would shut down Monday and would restart when the company emerges from bankruptcy.

"The necessary steps have been taken to give one of America's most storied companies a new lease on life," Obama said.

But the president also criticized a group of investment firms and hedge funds that did not agree to a $2.25 billion cash offer to cancel $6.9 billion in Chrysler's debt, saying they were holding out "for the prospect of an unjustified taxpayer-funded bailout." Chrysler's main task in bankruptcy will be to force that deal on those lenders, which the administration said it had the necessary votes from enough Chrysler debt holders to accomplish.

"They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting," Obama said.

"I don't stand with them," he added. "I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars."

Chrysler chairman Robert Nardelli, who will leave once the company emerges from bankruptcy, said it would continue to operate its three brands and Mopar parts service.

Sergio Marchionne, chief executive officer of Chrysler's new partner Fiat S.p.A., said the deal would "create a powerful new automotive company, while helping preserve jobs and a manufacturing industry that is critically important to the U.S. and Canadian economies."

Under Chrysler's bankruptcy, filed in New York yesterday, the government will provide $3.3 billion for Chrysler to operate in bankruptcy. The UAW's health-care trust fund will own 55 percent of the new Chrysler, while Fiat will hold 20 percent, the U.S. government will hold 8 percent, and the Canadian and Ontario governments will together hold 2 percent.

Fiat's stake will grow to 35 percent if Fiat meets certain milestones, such as building new models in Chrysler plants. Besides the $3.3 billion, the government will also provide up to $4.7 billion for the new Chrysler once it emerges.

The Obama administration will also give additional aid to GMAC so that it can take over lending to Chrysler's customers and dealers from Chrysler Financial, which the government has deemed not viable. The Canadian government will also provide new financial aid to Chrysler's operations in that country.

The administration portrays its "surgical" bankruptcy of one of Detroit's major automakers as just a legal chore, rather than the threat to Chrysler's existence and the entire U.S. auto industry that Chrysler itself had described less than three months ago. Administration officials said that Chrysler would operate as usual during bankruptcy and that no additional job cuts were anticipated.

The number of Chrysler dealers, now about 3,200, will be reduced through bankruptcy, but the administration officials did not say how many would be eliminated.

The decision to take Chrysler into bankruptcy came after lenders balked at the original $2 billion offer, as well as an increase of $250 million from Treasury on Wednesday evening.

The UAW late Wednesday night overwhelmingly ratified cost-cutting changes in its labor contract that freeze wages for Chrysler's 26,000 U.S. hourly workers and slash more than $5 billion from what Chrysler was to pay into a retiree health-care trust next year.

What the bankruptcy means for various groups.

Car buyers: Warranties remain in effect.

Workers: Most production plants will shut until the Fiat deal closes. Chrysler will pay up to 50 percent of weekly pay. Workers also can apply for state unemployment benefits.

Retirees: No change in pension plans.

Dealers: Total will be cut by an unspecified number.

SOURCE: Associated PressEndText