Up Next for Chrysler: Chapter 11

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Chrysler, the nation's third largest automaker behind General Motors (NYSE: GM  ) and Ford (NYSE: F  ) , will file for Chapter 11 bankruptcy and be eligible for $8 billion in federal aid. President Obama announced the news this afternoon in a press conference in which he blasted speculators for failing to stand behind the embattled company.

In a speech that blamed a small group of investment firms and hedge funds for refusing to help the automaker, a company saddled with $6.9 billion in debt, Obama said that bankruptcy is a necessary path to restore Chrysler's financial health, giving it "a new lease on life." As part of the agreement, Chrysler will partner with the Italian carmaker Fiat.

Creditors faulted
"I have every confidence that Chrysler will emerge from this process stronger and more competitive," Obama said. "The path we're taking is hard. But as is often the case, the hard path is the right one."

The announcement comes just a day before a government deadline in which Chrysler was to submit a restructuring plan. That plan was made impossible, according to the president, by creditors who refused to help write down the company's debt, insisting on a "taxpayer-funded bailout."

"[The creditors] were hoping that everybody else would make sacrifices, and they would have to make none," Obama said. "I don't stand with them. I stand with Chrysler's employees."

Yesterday, The Washington Post reported that a statement was released by a group claiming to represent creditors who chose not to support Chrysler's restructuring, saying they had been "systematically precluded" from direct negotiations with the government.

While Obama lauded Chrysler as a "pillar of our industrial economy," he said that the company had been weakened over time by avoiding tough choices, moving too slowly to adapt to the future by "designing and building cars that were less popular, less reliable, and less fuel-efficient than foreign competitors."

The partnership deal with Fiat, he said, will work to change that.

Management change
Yesterday, Chrysler CEO Robert Nardelli said he would step down after the company emerges from bankruptcy protection. Nardelli, the former boss at Home Depot (NYSE: HD  ) , became Chrysler's CEO when Cerberus Capital Management bought the majority of the automaker from Daimler (NYSE: DAI  ) in 2007. In an interview with CNBC, Nardelli said that the Treasury Department did not ask him to resign, but that he felt it would be an appropriate time to leave once the company reemerged from bankruptcy.

Nardelli also indicated that Chrysler would be run by a nine-person board, with four picked by the U.S. government and three by Fiat. The board will pick a new CEO, he said.

"These are challenging times for America's auto industry and for the American people," Obama said during his White House press conference, stressing that "shared sacrifice and shared purpose" will see nation's troubled carmakers return to prominence. "Chrysler and GM are going to come back. And I am very confident that we're going to be able to make once again the U.S. auto industry the best auto industry in the world."

So, Fools, what do you think? Let us know: 

Fool contributor Leef Smith Barnes does not own shares of any companies mentioned. The Home Depot is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy will keep you out of moral bankruptcy.

Read/Post Comments (13) | Recommend This Article (19)

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  • Report this Comment On April 30, 2009, at 5:20 PM, CAPTAINWACK wrote:

    You have to be kidding me. We all knew this was coming and good old Obama lent them 4 billion and now it's another 8 billion of tax payer money with no end in sight. So where does all this money go? It keeps the payments to the bond holders on schedule without Chrysler falling into default. So yes, we the tax payers are the ones paying the bonds. But why not, the bond holders are big contributors to the Obama propaganda machine. This president is by far the biggest con-man to ever hold office. An absolute moron.

  • Report this Comment On April 30, 2009, at 6:21 PM, rightpriority1 wrote:

    Yes, Chrysler can certainly do better in running their organization, starting with quality and fuel efficiency, but they actually put out some great products, and have innovated much over the years. They invented the SUV and the minivan. As a parent with 3 kids under 10, I could not imagine going on a vacation without our Chrysler minivan. They are not cool, but phenominally practical.

    The main people at fault are the finance people on wallstreet.

    (1) First, oil speculators bid oil up from $50/barrel to $140/barrel in less than a year. Did demand go up 180%? No, more like 5%. This killed the pickup truck and SUV markets, which up until then, was what America wanted to buy (Ford F150 was the top selling vehicle in America for how many years? (I believe 3), and even Toyota was building the Tundra. A heavy manufacturing industry cannot change their product line in 6 months or a year. It is a 3 or 4 year process (even to Toyota).

    (2) Credit crisis ( your know, toxic assets, crazy derivatives, jumbo mortgages to people making minimum wage, Lehman failure, Trillion dollar bailout of banking industry). An automaker has an enormous amount of fixed costs in plants, equipment, and even people cost. The best run heavy manufacturing companies can maybe sustain a 25 or 30% sales decline before being in serious trouble. The normal vehicle sales for the US is over 17M/year, currently 2009 is tracking at less than 8M/year, or more than a 50% decline. This will crush any company with heavy mfg. Do you think people suddenly did not want to buy cars because of what the car companies did? Of course not, it is the main fault of the banking industry.

    (3) As a parting blow for Chrysler, they could have avoided bankrupcy if the hedge funds agreed to the bond terms that all the banks agreed to. But they had "hedged" themselves to actually profit more if they can kill Chrysler. That type of greed and manipulation is just extremely immoral.

    Please remember, none of these car companies would be failing if it wasn't for the greed and manipulation of the finance community.

  • Report this Comment On April 30, 2009, at 6:32 PM, 7footmoose wrote:

    Unfortunately Chrysler like the other domestic automobile manufacturers and even other domestic manufacturing companies suffers from the idea that they do not need to compete in order to keep customers. The company simply does not produce enough quality automobiles which satisfy the needs and wants of the consumer. Yes they invented the SUV and the mini-van but they also have produced a long line of models which were DOA. There is an over capacity in the automobile industry and the weak will not survive. Sell off the good parts and put the rest of the company out to pasture.

  • Report this Comment On April 30, 2009, at 6:43 PM, mrtjd wrote:

    Actually, I agree with all three choices in the above pole. Silly questions. Bankruptcy will wipe out their debt, and get them started fresh, making cars people want will help sell them, and no need to bail out failed corporations when you allow them to go into bankruptcy and restructure or be sold off. Competition will reform eventually.

  • Report this Comment On April 30, 2009, at 8:16 PM, HemiJimmy wrote:

    I would much rather see 8 billion more go to Chrysler than Hundreds of Billions dumped in the black hole on Wall Street. At least Chrysler has some assets and thousands of jobs to save in this country. Im sick of the greedy me me me attitude of so called Americans that drive around in Kia's and Toyota's. You can only ruin and out source so many middle class jobs before you create a 3rd world country, population, and economy. Buzzards coming home to roost is all this is. The one (Buzzard) that just vacated the White House set this moving out party up for ya old Buddy. Since you brought up Idiots or was it Moron's. I get a good laugh at the people trying to blame Obama. What do you drive Sport, and How did Obama ruin our economy before he took office. That,s some trick. Fact is, Ford, Chrysler and GM are building the best quaility products they ever made in there 100 yr history's. The engineering excellence your now seeing in Toyota, Honda, Kia, Hyundai is attributed in a large part to American Engineer's who have been displaced by Ford, Chrysler, and GM in the last 20 yrs while the Brain Washed Americans kept eating away at the big 3's market share by driving all the foriegn junk around with Proud to be American stickers pasted on the rear end. Sorry but I feel like every American has his or her own share in the blame for where we are today. Myself included. Cheaper is not always the better choice, it can really cost ya in the long run. Im sure glade Im not in the Hedge Funds that thumb their nose's at Obama. In Backruptsy Court Chysler may not have any IOU's remaining when they get around to them Lexus Driven Nimrods. He He.

  • Report this Comment On April 30, 2009, at 8:19 PM, jesse2159 wrote:

    Since the UAW will be the major beneficiary after the dust clears, (and own the majority of the company) how about the debtors give the UAW all decisions from here on out. Yep, tell the workers to make a profit or lose it all, jobs, pensions and lifetime health benefits. Put it all on the line. The UAW made impossible demands over the years, threatening to strike over everything Now, call their bluff. They keep saying that the employees make $26 per hour. No sir! It's $78 per hour with all the benefits. I generally don't beef about a living wage, but the UAW has been extorting money for years and only a Bankruptcy judge can throw out the UAW contracts.

  • Report this Comment On April 30, 2009, at 8:30 PM, HemiJimmy wrote:

    A 1970 HEMI Cuda fully restored sells for $100,000 and up to 1 million for select Convertable HEMI's. Whats a 50 yr old Toyota worth ?? Some make a good living finding and restoring and selling Muscel cars from the Big 3. I havent seen any 1971 Honda cars restored for sale. Ever. Kia Soul in 20 yrs will just be rust. I wonder what a SRT8 2008 Challenger will be worth in 20 yrs. What the ___, I bought one of each new Challenger and Charger. Love um both.

  • Report this Comment On April 30, 2009, at 10:13 PM, FatboyMan05 wrote:

    to say that banking is at the root of the car company probmems is to say that its my credit card companys fault that I agreed to take out the credit...

    fuel standards - so if

    I make the Scion XB 300 pounds heavier 2011 - I get to meet a lesser standard for fuel economy instead of having to increase MPG by 1 MPG - look for slightly bigger cars in the next 2 to 3 years

    Oil prices - they go up and down. we live in america and big cars are the standard and carpooling is limited - I loved my 12 MPG Jeep Grand Wagoneer (Paid for ) and if I didnt need the $ I;d be driving it today and smiling....

    AMC - after getting saved by the government, chrysler bought out AMC (for the

    Jeep label) and bulldozed the factories in Kenosha to get the tax write off - not that AMC didnt do the same thing to Nash and Studebaker

    I dont blame obama for creating the situation but no need for a good crisis to go to waste.... will history say that he helped or that he facilitated

    UAW - I agree lem them run them to success to failure. the big three should have fought harder to keep the unions in check....

    41 years old and owned SIX Chrysler Vehicles (and four AMC vehicles) and liked most of them but just knew I would have been better off in certain other makes.... and hope to make a Jeep Wrangler my next vehicle

  • Report this Comment On May 01, 2009, at 7:48 AM, 4Magoo wrote:

    What happens to the stock? I can't understand why it hasn't fallen through the floor? I thought they would just wipe out the stock totally.

  • Report this Comment On May 01, 2009, at 10:06 AM, stopitnow wrote:

    Government canot be allowed to take an equity position in GM or any other company! It is contrary to our free society and borders on communism. let the government take a super lien on assets [same as a bank asset lien] and allow bondholders to convert 100% to equity and run GM [along with shareholders]for 2 to 3 years while making interest and principal payments. Failing to reverse the situation government or lienholders can foreclose and sell assets. I'm sure Chevy, Buick, GMC, etc. are worth much more than $15 or $20 billion.

  • Report this Comment On May 01, 2009, at 1:10 PM, rufianno wrote:


  • Report this Comment On May 01, 2009, at 1:22 PM, Sunny1ChiTown wrote:

    If you make it a point to buy only American cars then buy Ford.

  • Report this Comment On May 02, 2009, at 7:38 AM, overley wrote:

    Obama wants to give the bondholder 5 cents on the dollar while give the UAW 70 cents on the dollar, and then excoriates them for being upset. I pray the bankruptcy judge isn't a political hack.

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