Supreme Court Clears Chrysler-Fiat Deal
Updated 8:35 p.m. EDT
The Supreme Court on Tuesday cleared the way for Chrysler LLC's sale to Fiat, turning down a last-ditch bid by opponents that included consumer groups and three Indiana pension plans.
The court rejected a plea to block the sale of most of Chrysler's assets to the Italian automaker. Chrysler, Fiat and the Obama administration had warned that the high court's intervention could have scuttled the sale.
A federal appeals court in New York had earlier approved the sale, but gave opponents until Monday afternoon to try to get the Supreme Court to intervene.
Justice Ruth Bader Ginsburg ordered a temporary delay just before a 4 p.m. deadline on Monday. A little more than 24 hours later, the court freed the automakers to complete their deal.
The opponents include a trio of Indiana pension plans, consumer groups and individuals with product-related lawsuits.
The court issued a brief, unsigned opinion explaining its action. To obtain a delay, or stay, someone must show that at least four of the nine justices find that the issue raised is serious enough to warrant hearing a full appeal and that a majority of the court will conclude the lower court decision was wrong.
"The applicants have not carried that burden," the court said.
Chrysler has been working to complete the sale of its assets to Fiat before a June 15 deadline, a key element in its restructuring plans.
The pension plans seized on comments from Fiat officials that they would not walk away from the deal even if June 15 were to pass without completing the sale. The plans tried to persuade the justices that there was no reason to rush to meet that deadline.
But Chrysler, Fiat and the Obama administration stressed in response that Chrysler was losing $100 million a day and that the deal automatically terminates in less than a week, with no guarantee that a new agreement would be reached.
The court did not consider the merits of the opponents' arguments, only whether to hear their full-blown appeal.
Earlier Tuesday, a bankruptcy judge on approved Chrysler's plan to terminate 789 of its dealer franchises.
U.S. Judge Arthur Gonzalez issued an order Tuesday afternoon saying the franchises, which represent about 25 percent of the company's dealer base, can no longer act as authorized Chrysler, Dodge and Jeep dealers, effective immediately. A written ruling explaining the decision was expected to be filed later.
More than 25 attorneys representing hundreds of dealers from across the country argued in court that little would be gained by terminating the franchises, while Chrysler maintained that the move is a necessary part of its plan to cut costs and quickly emerge from Chapter 11.
Many of the dealers were trying to sell the last cars on their lots and preparing to shut their doors for good at the end of the day, while others planned to sell used cars or other brands after severing ties with Chrysler.
"Tomorrow we become Star Pre-Owned Super Center," Doug Swaim, the owner of Star Chrysler-Jeep, told CBS News correspondent Ben Tracy. "No Chrysler, no Jeep. It's gonna be a sad day."
The 789 Chrysler dealers are being cut off by the company tonight. After that, no more Chrysler rebates and even new cars must be sold as used, Tracy reports.
As his relationship with Chrysler ends, Swaim still has 97 new Chrysler and Jeep cars - worth about $2.5 million - left on his lot. Across the country, there are still 26,000 new cars on Chrysler lots that close today.
Chrysler is now telling its dealers it will take them off their hands and off their lots. The company says shut down dealers can transfer their leftover cars to dealers staying in business - but at a loss of $350 to $1,000 per car, Tracy reports.
Swaim's dealership stands to lose about $100,000.
"We didn't deserve this, just flat didn't deserve it," he said.
At Tuesday's hearing, Chrysler attorneys also said that the automaker would extend until Monday its program to help the affected dealers send any unsold vehicles to other dealers.
The sale of Chrysler's assets to Fiat Group SpA had been expected to close more than a week ago. In a brief filed with the Supreme Court Tuesday afternoon, Chrysler and Fiat warned that the deal will terminate if it does not close by June 15.
The Auburn Hills, Mich., automaker has been flying through five weeks of bankruptcy proceedings and appeared all but certain to complete the sale of its assets to Fiat before the June 15 deadline. But Ginsburg issued a stay Monday to review an appeal by a trio of Indiana pension and construction funds which own a small part of Chrysler's secured debt.
Chrysler has maintained that if it were to lose Fiat, the only alternative for the company would be liquidation, reports CBS News correspondent Anthony Mason.
Production at Chrysler's manufacturing plants remains halted pending the closing of the sale. Chrysler, which says it is losing $100 million every day its plants are closed, said it had no comment until it receives further information from the court.
Chrysler's ability to speed through the bankruptcy process has partially been a result of the involvement of the Obama administration's auto task force, which provided $4.5 billion in financing and helped negotiate a deal between the company's stakeholders.
Under a deal brokered in the days leading up to Chrysler's April 30 Chapter 11 filing, Fiat will receive up to a 35 percent stake in the new company created by the sale, in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.
The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake.
Meanwhile, the automaker's secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some of the debtholders balked at the deal, saying as secured lenders they deserved more.
The Indiana funds filed an objection to the sale and later appealed to the 2nd U.S. Circuit Court of Appeals and the Supreme Court. They claimed the sale unfairly favors Chrysler's unsecured stakeholders such as the union ahead of secured debtholders like themselves.
The funds hold about $42.5 million, or less than 1 percent, of Chrysler's $6.9 billion in secured debt. They bought it in July 2008 for 43 cents on the dollar.
© 2009 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report. The Supreme Court on Tuesday cleared the way for Chrysler LLC's sale to Fiat, turning down a last-ditch bid by opponents that included consumer groups and three Indiana pension plans.
The court rejected a plea to block the sale of most of Chrysler's assets to the Italian automaker. Chrysler, Fiat and the Obama administration had warned that the high court's intervention could have scuttled the sale.
A federal appeals court in New York had earlier approved the sale, but gave opponents until Monday afternoon to try to get the Supreme Court to intervene.
Justice Ruth Bader Ginsburg ordered a temporary delay just before a 4 p.m. deadline on Monday. A little more than 24 hours later, the court freed the automakers to complete their deal.
The opponents include a trio of Indiana pension plans, consumer groups and individuals with product-related lawsuits.
The court issued a brief, unsigned opinion explaining its action. To obtain a delay, or stay, someone must show that at least four of the nine justices find that the issue raised is serious enough to warrant hearing a full appeal and that a majority of the court will conclude the lower court decision was wrong.
"The applicants have not carried that burden," the court said.
Chrysler has been working to complete the sale of its assets to Fiat before a June 15 deadline, a key element in its restructuring plans.
The pension plans seized on comments from Fiat officials that they would not walk away from the deal even if June 15 were to pass without completing the sale. The plans tried to persuade the justices that there was no reason to rush to meet that deadline.
But Chrysler, Fiat and the Obama administration stressed in response that Chrysler was losing $100 million a day and that the deal automatically terminates in less than a week, with no guarantee that a new agreement would be reached.
The court did not consider the merits of the opponents' arguments, only whether to hear their full-blown appeal.
Earlier Tuesday, a bankruptcy judge on approved Chrysler's plan to terminate 789 of its dealer franchises.
U.S. Judge Arthur Gonzalez issued an order Tuesday afternoon saying the franchises, which represent about 25 percent of the company's dealer base, can no longer act as authorized Chrysler, Dodge and Jeep dealers, effective immediately. A written ruling explaining the decision was expected to be filed later.
More than 25 attorneys representing hundreds of dealers from across the country argued in court that little would be gained by terminating the franchises, while Chrysler maintained that the move is a necessary part of its plan to cut costs and quickly emerge from Chapter 11.
Many of the dealers were trying to sell the last cars on their lots and preparing to shut their doors for good at the end of the day, while others planned to sell used cars or other brands after severing ties with Chrysler.
"Tomorrow we become Star Pre-Owned Super Center," Doug Swaim, the owner of Star Chrysler-Jeep, told CBS News correspondent Ben Tracy. "No Chrysler, no Jeep. It's gonna be a sad day."
The 789 Chrysler dealers are being cut off by the company tonight. After that, no more Chrysler rebates and even new cars must be sold as used, Tracy reports.
As his relationship with Chrysler ends, Swaim still has 97 new Chrysler and Jeep cars - worth about $2.5 million - left on his lot. Across the country, there are still 26,000 new cars on Chrysler lots that close today.
Chrysler is now telling its dealers it will take them off their hands and off their lots. The company says shut down dealers can transfer their leftover cars to dealers staying in business - but at a loss of $350 to $1,000 per car, Tracy reports.
Swaim's dealership stands to lose about $100,000.
"We didn't deserve this, just flat didn't deserve it," he said.
At Tuesday's hearing, Chrysler attorneys also said that the automaker would extend until Monday its program to help the affected dealers send any unsold vehicles to other dealers.
The sale of Chrysler's assets to Fiat Group SpA had been expected to close more than a week ago. In a brief filed with the Supreme Court Tuesday afternoon, Chrysler and Fiat warned that the deal will terminate if it does not close by June 15.
The Auburn Hills, Mich., automaker has been flying through five weeks of bankruptcy proceedings and appeared all but certain to complete the sale of its assets to Fiat before the June 15 deadline. But Ginsburg issued a stay Monday to review an appeal by a trio of Indiana pension and construction funds which own a small part of Chrysler's secured debt.
Chrysler has maintained that if it were to lose Fiat, the only alternative for the company would be liquidation, reports CBS News correspondent Anthony Mason.
Production at Chrysler's manufacturing plants remains halted pending the closing of the sale. Chrysler, which says it is losing $100 million every day its plants are closed, said it had no comment until it receives further information from the court.
Chrysler's ability to speed through the bankruptcy process has partially been a result of the involvement of the Obama administration's auto task force, which provided $4.5 billion in financing and helped negotiate a deal between the company's stakeholders.
Under a deal brokered in the days leading up to Chrysler's April 30 Chapter 11 filing, Fiat will receive up to a 35 percent stake in the new company created by the sale, in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.
The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake.
Meanwhile, the automaker's secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some of the debtholders balked at the deal, saying as secured lenders they deserved more.
The Indiana funds filed an objection to the sale and later appealed to the 2nd U.S. Circuit Court of Appeals and the Supreme Court. They claimed the sale unfairly favors Chrysler's unsecured stakeholders such as the union ahead of secured debtholders like themselves.
The funds hold about $42.5 million, or less than 1 percent, of Chrysler's $6.9 billion in secured debt. They bought it in July 2008 for 43 cents on the dollar.
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The Supreme Court knew, as I did, that there's larger issues here at stake. Such as all of the customers over the past 5 years who have put their money into Chrysler cars, suddenly getting screwed because they no longer have warranty coverage. Imagine if you were in debt to a bank for $30K for some Chrysler vehicle that was a year old and you suddenly got told that the warranty would not be honored. You couldn't sell the thing for more than a few grand, you might as well just stop paying the car note and let the repo man come and get it. Then all those banks are suddenly stuck with new Chrysler cars and trucks that they take a huge loss on. What do you think that's gonna do to the economy?
These Chrysler car dealers are getting off easy. They may take a few grand in loss on their new vehicles. Contrast that to the millions those folks have made off selling Chrysler vehicles over the years. In the last analysis, they had a darn good ride, very profitable. Now it's over. Oh well, you move on to some other brand. It's not like the US population is suddenly going to stop needing cars.
And as for supporting contracts, what good are a bunch of bond contracts if you screw the economy to do it? OK, so let the secured creditors get their claims, and let the Fiat deal unravel. So then the US gets plunged into depression and that extra money the bondholders get is now worth only the paper it's printed on. Where we are at now, you won't save the economy by playing according to the law, your going to have to bend a few laws. As Bush did last year when he bailed out all the banks.
The idiots screaming how Obama is flouting the law seem to forget the far worse flouting of international law that Obama's predecessor in the White House was doing. Such as torturing POWs.
Posted by vistavermin1 at 9:04 PM : Jun 9, 2009
Apparently be careful when investing in any American company. You may get it taken away from you and given to someone else.
"The provision mandates that only U.S.-produced steel, iron and manufactured goods be used in projects receiving federal stimulus money. Companies that send source material outside the US for manufacture may be disqualified from stimulus work. "
What are the rules for providing stimulus money to Italian companies?
Posted by CPelzar
I don't know about that. I'm excited to see what they will come up with and start selling here.
But I will tell you this: I"m never going to buy a GM product again after they sold out to Obama's government.
But Obama STOLE their PRIVATE PROPERTY and awarded it to other people who he thought were MORE DESERVING. Ironically, he gave it to the very people that ran it into the ground: the greedy unions.
Posted by massey24 at 6:51 PM : Jun 9, 2009
excellent post. It really is disgusting.
Well they are the reason why you Mr Dealer can not sale Chrysler cars any more.
Why dont you sue the auto union they did this to you!