Archives for April 2009

The news today did not come as a total surprise-Chrysler filed for Chapter 11 Bankruptcy today. While listening to local news reports from various Chrysler dealerships today, the general feeling was relief-not panic, the emotion normally associated with this sort of news. The key here is that Chrysler (and GM, for that matter), were asked by the US government in advance to have bankruptcy plans in place, should it come to that. 

And on Wednesday night, it did “come to that.” Chrysler was working with its creditors on a debt-for-equity swap. Some of the banks refused to go along, and as a result Chrysler was left with no alternative but to file for bankruptcy. As quickly as Chrysler filed, a plan for a “new” Chrysler was introduced, with a detailed look at Fiat’s new role in the company.

First, let’s break down who owns Chrysler, as Cerberus has given up its 80% stake, and Daimler gave up its 20% stake.  The Voluntary Employee Beneficiary Association (VEBA, aka the UAW) owns 55%, while 10% is proportionally shared between the US and Canadian governments. Fiat owns 20% of Chrysler off the bat, plus an additional 15% as Fiat meets three pre-determined goals:

• When Fiat brings a 40mpg vehicle platform to be built in the US.
• When Fiat brings a fuel efficient engine family to be built in the US.
• When Fiat provides Chrysler access to its global distribution network for export of North American built vehicles.

Finally, once all government-backed loans are repaid, Fiat can become a majority owner of Chrysler.

Obviously, there is a lot of work to be done, but what does this news mean right now? First, Chrysler Financial is being replaced by GMAC, who will provide loans and financing to dealers and consumers. Chrysler CEO Robert Nardelli announced he will step down once bankruptcy proceedings are over. Nardelli will then continue with Cerberus as an advisor. 

Chrysler said the company will continue normal operations, with the exception of production-no vehicles will be built while the company is operating under bankruptcy protection. Vehicle warranties will be honored, dealers will receive inventory, and suppliers will be paid. Finally, we are told this will be a very quick bankruptcy, lasting only 30-60 days. 

It seems like an unlikely marriage, Chrysler and Fiat, but I have high hopes. I had high hopes when Daimler and Chrysler became a so-called “merger of equals”. Instead of truly sharing technology, Daimler threw Chrysler nothing but obsolete scraps. But here, Fiat wants something, and that’s an easy in back to North America. Dealer network? Check. Suppliers, manufacturing facilities? Check. 

As quick as Chrysler’s bankruptcy is said to be, the changes to turn this sinking ship around will not happen overnight. Chrysler’s biggest liability are the holes in their vehicle lines, which are chiefly:

• No small, desirable car. Caliber? No thanks.
• A non-competitive mid-size car in the Sebring/Avenger
• While crossovers are the rage, the Dodge Journey is a wallflower

Chrysler has promised updated versions of the Jeep Grand Cherokee and Chrysler 300/Dodge Charger, but those are a full model year away at least, for now. We could possibly see Dodge/Chrysler badged Fiats, but that could take up to two years to happen. Fiat could also bring back Alfa Romeo, but again, who knows when that could happen. For now, we just have to wait and see.

Realistically, bankruptcy could be the best thing that could have happened to Chrysler. Maybe that’s why some people were actually relieved at the news. Time will tell, but this begins a new chapter for Chrysler.