April 30, 2009

Chrysler files for bankruptcy protection

CARS/POLITICSc - Today automaker Chrysler filed for bankruptcy protection.

Ontario Premier Dalton McGuinty and Canadian Prime Minister Stephen Harper are joining with United States President Barack Obama in a $14-billion bailout of Chrysler, which filed for U.S. Chapter 11 bankruptcy protection this afternoon.

Ontario and Ottawa are jointly putting up $3.8 billion of the loan package and will take a combined 2% ownership stake in the new, restructured U.S. corporation and its Canadian subsidiary. The United States will own 8%. In exchange for financial support, Chrysler has agreed to maintain 20% of its North American production in Ontario.

"This is another step we need to take, together, that gives Chrysler the best possible opportunity for success and gives Ontario taxpayers the best possible protection as we join forces with the federal government and President Obama's administration," said McGuinty. "And it ensures, above all, that Ontario will continue to produce cars and Ontario families will continue to have jobs in that sector."

FACT: Ontario produces more cars and trucks than Michigan and approx. 20% of all vehicles made in North America.

Earlier today, Obama confirmed in a press conference that Chrysler's negotiations between Italian automaker Fiat have been fruitful and the two firms will enter into a partnership.

But the grueling efforts by Chrysler to come up with a restructuring strategy that meets with government approval in Canada and the U.S. ran into a last-minute stumbling block. A group of about 40 hedge funds owed money by the automaker opposed a plan that would cut Chrysler's $6.9 billion (U.S.) of secured debt. After talks with the lenders broke down last night, Chrysler was forced to file for bankruptcy protection today.

"This isn't fair," says one economist. "It was the greedy market speculators who caused this whole credit crisis, and now they're the ones who are refusing to lend money to Chrysler. Its ridiculous. It should be illegal."

"No one should be confused about what a bankruptcy process means," said President Obama. "This is not a sign of weakness, but rather one more step on a clearly charted path to Chrysler's revival."

Harper took the unusual step of issuing a combined written statement with the U.S. president. "Thanks to our joint efforts, there is now a road ahead to a stronger Chrysler and a stronger industry in the future on both sides of the border," it said.

Chrysler has up to 8 years to pay back the various loans and will be charged interest rates of at least 7% annually.

Part of the deal is the appointment of a new, 9-person Chrysler board of directors. There will be 3 Fiat appointees, 4 from the U.S. government, 1 from the United Auto Workers, and 1 appointed by governments in Canada.

The United States, Canada and Ontario will own their shares until at least Jan. 1, 2013 unless someone buys them out. Fiat has right of first refusal to buy the governments' shares.

Hopefully this will be the end of Chrysler's crisis.

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