Dark Day For Chrysler

(AP Graphics)
There have been glimmers of life in the banking sector in recent days, but vital signs may be growing fainter for a prominent member of America's other favorite fallen industry, the "Big Three" car makers.

Friday has brought another wave of bad news for Chrysler LLC. Banks are balking at requests to forgive part of the company's debt, talks with its union may have reached an impasse and its boardroom is headed for an overhaul.

Should banks such as Citigroup, Morgan Stanley, Goldman Sachs, and J.P. Morgan Chase refuse to renegotiate the terms of the nearly $7 billion owed them by the troubled car manufacturer, it will jeopardize the company's planned alliance with Italy's Fiat SpA, The Washington Post reports today. At a meeting with Steven Rattner, chief of the government's auto task force, the four banks were reportedly less than thrilled by a proposal that would see them accept 15 cents on the dollar for the outstanding money. This would translate into roughly $1 billion in place of the initial $7 billion in debt.

The collapse of a deal with Fiat will almost undoubtedly lead to liquidation for the almost 90-year-old company and the loss of an estimated 180,000 jobs. That could be good for the banks though. The Post reports that these loans could be 30 to 50 cents on the dollar if the company goes into bankruptcy and sells its assets.

Meanwhile, as the teetering manufacturer fights to withstand credit pressures, it is also racing to try to complete concession agreements with United Auto Workers and Canadian Auto Workers unions before an April 30th deadline, according to the Associated Press. Again, the proposed partnership with Fiat hangs in the balance.

Fiat's CEO has said he will walk away unless Chrysler's labor unions agree to substantial concessions. The Canadian union is proving particularly unwilling to accept drastic cuts, Chrysler's CEO Robert Nardelli told employees in an e-mail message last night. If a deal is not completed in two weeks, both the U.S. and Canadian governments have said they will cut off support and the company will likely fall into bankruptcy. Chrysler has received approximately $4 billion in loans from the U.S. government and an additional $1 billion from the Canadian government.

In a letter to Canadian employees this morning, Nardelli and Chrysler President Tom LaSorda said that labor costs need to come down from $76 Canadian (or $62.68 in U.S. dollars) per hour to Toyota Motor Corp's rate in Canada of about $57 Canadian (or $47) per hour, according to the AP. The letter said the CAW's refusal "to work within the government's guidelines jeopardizes the future of Chrysler and our operations in Canada."

And if Chrysler weathers these two substantial challenges and survives, its boardroom will look a lot different, and a new CEO will be at the helm.

"The majority of the directors will be independent (not employees of Chrysler or Fiat). The board will have the responsibility to appoint a chairman. The board also will select a CEO with Fiat's concurrence," Nardelli wrote in a letter to employees, according to The Wall Street Journal.

In other news related to the auto industry, there could be some impending controversy surrounding Rattner, who is overseeing the administration's auto task force. The New York Times and other outlets this morning are reporting that he arranged for his private equity firm, Quadrangle Group, to pay $1 million to obtain New York State pension business, according to Securities and Exchange Commission documents. You can read more about that here.
  • Brent Lang

Comments

Watch CBSN Live

Watch CBS News anytime, anywhere with the new 24/7 digital news network. Stream CBSN live or on demand for FREE on your TV, computer, tablet, or smartphone.