Obama Backs Chrysler Bankruptcy

Automaker Files Chapter 11; Will Receive $8B To Carry Through Deal With Fiat; Also Will Temporarily Halt Manufacturing

(CBS/AP)  President Barack Obama announced Thursday that Chrysler would head into bankruptcy with the aid of up to another $8 billion in U.S. taxpayer money, a last-resort attempt to quickly restructure the struggling giant. He blasted hedge-fund creditors whom he said held out for a richer deal.

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

As part of the deal, Chrysler is signing a partnership with the Italian company Fiat. The government will be an investor in the revamped Chrysler and will help choose its new directors, but the Obama administration does not plan to help manage the company.

The government of Canada is chipping in another $2.5 billion of aid for Chrysler. Mr. Obama and Canadian Prime Minister Stephen Harper released a joint statement Thursday afternoon thanking one another, the United Auto Workers , the Canadian Auto Workers, and Chrysler creditors for allowing the restructuring to take place.

Soon after Mr. Obama spoke, Chrysler CEO Robert Nardelli announced he would resign his post after the automaker emerges from bankruptcy protection.

As the president announced the bankruptcy and restructuring of a company he called an American icon, Chrysler workers in Kokomo, Ind. watched in stunned silence. "Just kind of scared - you know, never thought I'd have to try to start over again when i got this job," Chrysler employee Brad Ice told CBS News business correspondent Anthony Mason.

Chrysler also said it would temporarily idle manufacturing starting Monday as part of the restructuring and the United Auto Workers union agreed last night to significant pay cuts as part of the restructuring. No further layoffs were planned, however.

Bankruptcy does not mean the No. 3 U.S. automaker will shut down. A Chapter 11 bankruptcy filing would allow a judge to decide how much the company's creditors would get while the company continues to operate. The goal is for the whole process to happen quickly, Mr. Obama said, perhaps within a couple months.

Consumers can still buy a Chrysler, warranties will be honored, and dealerships will continue to offer repair service, reports CBS News correspondent Alexis Christoforous.

The union agreed last night to significant pay cuts. Further layoffs are not expected. But Chrysler will idle most of its plants during bankruptcy.

Typically bankruptcies last for months or years, but the stigma alone could be disastrous for Chrysler. A recent survey found that more than 90 percent of buyers wouldn't chose the brand if the company went bankrupt, Mason reports.

"So its critical that not just Chrysler, but General Motors clear the air here and get a clear direction of where they're going," said Gary Dilts of J.D. Power & Associates.

But Fiat hasn't had a presence in the American market since the early 1980s, when some buyers joked that fiat stood for "Fix it again, Tony," Mason reports.

The president said that Chrysler has been responsible for helping to build the American middle class, but over the years also had been weakened by "papering over tough problems and avoiding hard choices."

"For too long," Mr. Obama said at the White House, "Chrysler moved too slowly to adapt to the future, designing and building cars that were less popular, less reliable and less fuel efficient than foreign competitors." (Click here to read President Obama's full remarks)

The Obama administration said it had long hoped to stave off bankruptcy for the nation's third largest automaker, but it became clear that a holdout group wouldn't budge on proposals to reduce Chrysler's $6.9 billion in secured debt.

Mr. Obama praised the sacrifices made by the autoworkers' union and the majority debtholders, whose concessions gave officials hope that Chrysler would be able to restructure without filing for Chapter 11. But the small hedge funds who hold 30 percent of Chrysler's outstanding debt held out for "an unjustified taxpayer bailout," according to the president.

"I don't stand with them," Mr. Obama said. "I don't stand with those who held out when everybody else is making sacrifices."

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Read a Q&A with CBS Evening News business producer Guy Campanile on the bankruptcy.

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The Treasury Department's auto task force had been racing in the past week to clear the major hurdles that prevented Chrysler from coming up with a viable plan to survive the economic crisis ravaging nation's automakers.

Along with the Fiat deal, the United Auto Workers ratified a cost-cutting pact Wednesday night. Treasury reached a deal earlier this week with four banks that hold the majority of Chrysler's debt in return for $2 billion in cash.

(President Barack Obama delivers remarks on the auto industry, Thursday, April 30, 2009, in the Grand Foyer of the White House in Washington.)

A third person briefed on Wednesday night's events said the Treasury Department and the four banks tried to persuade the hedge funds to take a sweetened deal of $2.25 billion in cash. But in the end, this person said most thought they could recover more if Chrysler went into bankruptcy and some of its assets were sold to satisfy creditors.

Speaking of the hedge funds who rejected the deal, an official told CBS News "their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity."

President Obama's auto task force in March rejected Chrysler's restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat. The company has borrowed $4 billion from the federal government and needs billions more to keep operating. President Obama said Wednesday night while the lender talks were still ongoing that he was "very hopeful" that deals can be worked out to keep Chrysler LLC a viable automaker, and more hopeful than he was a month ago that the company will stay in business.

The UAW agreement, which would take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler's U.S. facilities and to share key technology with Chrysler.

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Mr. Obama said Wednesday that Fiat's management "has actually done a good job transforming their industry."

The U.S. and Canadian governments will own 10 percent of the new Chrysler. Fiat will own 35 percent. The majority, 55 percent, will be owned by the United Autoworkers.

"And probably for the first time ever, you're going to have a union that's really tied to the outcome of the outcome of the company in a way that they've never been tied before," Dilts told Mason.

[noloyalisti]

Whatever is good for the workers is good for America. Unions are the salvation against the greedy evil corporations. Tell your reps to pass the Employee Free Choice Act to counter the well funded corporate bottom liners.

[walt1944]

Chrysler has gone into Chapter 11 and has stated that it will close all plants "temporarily" for 2 months and shut down THOUSANDS of dealerships worldwide.

Unconfirmed reports have it that former head of Chrysler, Lee Iococa, who rescued Chrysler back in the 1980's, was seen sobbing and mumbling "What have those idiots done to MY company???" when he heard the news.

As it is, it is expected that THOUSANDS will lose their jobs thanks to "hedge fund" creditors who refused to "play ball" with the government and Chrysler. It is also expected that Chrysler will emerge from banklruptcy (the government hopes!) and be smaller, leaner, and more competitive in the market. Also, it is expected that many of the highly-paid, highly-perked, absolutely-GREEDY, and TOTALLY-STUPID corporate executives who brought Chrysler into Chapter 11, will have moved on to other positions, perhaps at GM or Ford!!!!!

HAIL OBAMA!!!!!

[realnews12]

$8B for Chrysler, $6B for GM, that's $14B this week for the automakers. This is insane, literally insane!

Posted by sky_five at 5:10 AM : May 1, 2009

These are LOANS, sky. They are to be paid back to the government (i.e., the taxpayers) eventually.

[sleepyric]

i had a 1990 Toyota Corolla. In 1996 I bought a new Dodge Neon. It was the biggest piece of crap that I ever owned. Head gaskets failed; paint flaked off; brakes screamed even after replacing the linings; overheated; wires in the electrical system would burn up; you name it,,,it happened to it.. And not just my car, nearly everyone I knew that had one had similar problems. My wife wrecked the Corolla, but if she hadn't, it would still be running. I was lucky to get $1K out of the Neon. My point; If Japan can build a quality car, why can't America? Ford is getting there, slowly. GM and Chrysler build crap, so they get what they deserve. It's not the fault of the workers on the plant floor, it's the design and the quality of the car and it's supplier parts. Start building a Japan quality car, and you'll be ok. Use the same old processes, and this is going to happen again. I recently bought a KIA..and even it's amazing.

[demongirl60]

LOL.... I have to agree with WayAround. Who IS orchestrating this insanity????

[formrusmcsgt]

Posted by Rowdy108 at 8:51 PM : Apr 30, 2009 --

I'm sorry, you got your whole story mixed-up.

Posted by whitemale08 at 9:09 PM : Apr 30, 2009

rowdy reinvents history to her liking.

[woodjd42]

The American people are really being set up by there leadership to steal there wealth cause gosh golly Obama wouldn't rip you off... Nooo he's so wonderful and thoughtful. You stupid voters you really screwed yourselves big time. Why cant you see this? What is wrong with you people my he just gave away over 6 trillon $'s more than Bush or any other in hitory has ever done. Your children are over a hundred thousand dollars in debt he voted for the FISA bill he voted for the bail outs. He holds the record {5} time's for trying to change his votes after he voted,, what the hell is this?. He fly's his jet on purpose to let you all know that he doesn't know anything about it GIVE ME A BREAK.

That was a FU to NY to let them know that there is going to be another attack. Just like last time. Best wake up while you can
Posted by wardoglrs

Were you born stupid or did you have to work at becoming this way?

[WayAround]

Even in Europe (where I live), Fiat is a joke to everyone except nationalistic Italians.

Why is Fiat taking over Chrysler? Is it yet another stupid merger in the automobile industry, which will be reversed in a few years similar to...

BMW bought British automaker Rover; BMW sold British automaker Rover.
Daimler-Benz bought Chrysler; Daimler-Benz sold Chrysler.
Ford bought Jaguar; Ford sold Jaguar.
GM acquired Saab; GM "loses" Saab.
Ford buys shares in Mazda; Ford sells shares in Mazda.

Who is orchestrating this insanity?

[demongirl60]

Gee.... maybe now Crysler's overpaid, fata$$ CEO's will have to get REAL jobs!

[wardoglrs]

The American people are really being set up by there leadership to steal there wealth cause gosh golly Obama wouldn't rip you off... Nooo he's so wonderful and thoughtful. You stupid voters you really screwed yourselves big time. Why cant you see this? What is wrong with you people my he just gave away over 6 trillon $'s more than Bush or any other in hitory has ever done. Your children are over a hundred thousand dollars in debt he voted for the FISA bill he voted for the bail outs. He holds the record {5} time's for trying to change his votes after he voted,, what the hell is this?. He fly's his jet on purpose to let you all know that he doesn't know anything about it GIVE ME A BREAK.

That was a FU to NY to let them know that there is going to be another attack. Just like last time. Best wake up while you can

[whitemale08]

Now if you talking about the financials & bank bailout....that was totally manufactured by Bernanke and Geithner of the Federal Reserve...they met secretly with Congress on September 15, 2008, and presented them with their HOAX! They didn't even meet with or inform Bush/Paulson until September 18th, when they'd already presented the commies with a nice HOAX during an election year.
Posted by Rowdy108 at 8:51 PM : Apr 30, 2009 --

I'm sorry, you got your whole story mixed-up.

Of course Barney and Pelosi were complicit with Paulson in the Wall Street bailout but that was purely Paulson and Ben Bernanke especially since Paulson's 400 million dollar fortune in retirement stocks were sitting in a so-called 'trust' at Goldman Sucks.

Paulson also comitted treason when he forced Ken Lewis, CEO of Bank of America to swallow Merrill Lynch because Merrill Lynch had billions in worthless derivatives and credit-default swaps tied to Goldman Sucks where Paulson worked before.

Paulson also committed treason a year ago when he had Ken Lewis, CEO of Bank of America swallow Country Wide because of counter-party exposure could hurt Goldman Sucks.

So get your facts straight. Chrysler/GM shouldn't have been bailed-out in the first place because it was too late and would've only benifited Goldman Sucks and others to get out of their positiions and credit-default swaps but should've been re-organized so that the workers could start working on mag-lev trains that this country desperatly needs.

It's all about the worthless derivatives and credit-default swaps that Hank the Snake Paulson told us for years that were 'fundamentally sound' and when Bush told the world that: "Our entire economy was in danger", it was a trick so Paulson could use a 9/11-style crisis to sucker the taxpayer into bailing out the now defunct and worthless-derivatives and credit-default swaps.

[rsmik]

"Soon after Mr. Obama spoke, Chrysler CEO Robert Nardelli announced he would resign his post after the automaker emerges from bankruptcy protection. "

And after he gets his bonus.

[whitemale08]

For the first time, I actually AGREE with you!!! The political parties are being played against each other to take attention away from the REAL CRIMINALS in this CASH DASH.
Posted by TexasEd at 8:29 PM : Apr 30, 2009 --

Look, I like President Obama and I know you don't, just like Bush.

But the problem is that Obama has is now a sucker for Wall Street because of these silly bail-outs.

The toxic derivatives and credit-default swaps are in the 100's of trillions and could never be bailed-out entirely and yet Wall Street/City of London has convinced this president that it's possible when the real agenda is to just simply bankrupt the United States.

Folks, we have to see the hyper-inflation that will dwarf Weinmar Germany and bring about another Hitler but this time with nuclear weapons.

WE MUST PUT GOLDMAN SUCKS INTO RECEIVERSHIP NOW!!!!

[albert571]

Why wouldn't he back them? He is the one who caused them to fail !!

[spaceatoms]

My heater hasn't worked in 4 years and they have tried to fix it costing over 3000.00 and still can't get it right, close the whole thing down. And if someone files bankruptcy, then its a little more than a revival, please, maybe GM can merge with Finland next and the suits can get free ski vaca's. Eye of the Tiger balboa!

[jschmidt27]

I'm a little tired of hearing about bailing out the rich. Chrysler was owned not just by hedge funds but by pension funds, and mutual funds owned by thousands. But to Obama they are all evil rich people. Do not get suckered into vilifying the rich. The banks only have the small percentage of people at the top making the big bucks. All companies are made up of the regular guy/gal working to support their family. If you added up the big bucks made by the bankers it would amount to less the 10% of the stimulus package, but they are great focus for demonization by the Dems. It is a smokescreen. The Dems would like you not to see their own corruption by their leadership consisting of Rangel, Waters, Dodd, Murtha and Frank all being under ethics violations. The 'rich' employee a lot of people. The problem is the board of directors compensation committee. The way it works is one CEO is a board member of a company. And it is always a friendly arrangement to give the CEO of the company great compensation. It is too buddy buddy and needs to be changed. Certainly no bonus;s of anykind when a company is losing money. But becareful of punishish business whether with regulations or with higher taxes as is planned. Higher corporate taxes always lead to less jobs. Business is not evil as the Dems would have you believe.

[whitemale08]

I bet you like Star Trek movies huh?
Posted by Stuart2560 at 8:15 PM : Apr 30, 2009 --

What's your point?

If you're trying to be funny, I'm trying to be serious.

This bail-out from Hank the Snake Paulson, that Obama is being duped to continue by Larry Summers will make Goldman Sucks the ruler of the United States, doom President Obama and bankrupt this country for the sake of trillions and trillions of absolutely worthless toxic derivatives and credit-default swaps just on Goldman Sucks balance-sheets.

Now get your stupid head out of your butt and pay attention or face a certain DEATH!

[whitemale08]

I hate to say this but it's time to look past President Obama's presidency because the bail-outs of Goldman Sucks and their worthless derivatives and credit-default swaps will bankrupt the United States and plunge America into a New Dark Age.

What we have to worry about now is a post-Obama regime that will happen in very short order because we nor the President has the guts to put these TOO BIG TO FAIL banks, like Goldman Sucks and JP Morgan into RECEIVERSHIP and BANKRUPTCY RE-STRUCTERIING.

I say this and will continue to repeat posts like this as one of the few who predicted that our economy would not just enter a recession/depression but a general breakdown-crisis that end the United States and put in line with how British idiot PM Gordon Brown would like to think of us as just 'continents' of North America.

We have to do what ever is necessary to not stop the Obama/Clinton administration, because it's already doomed but to stop what will replace it, which is an extreme Fascist, possibly Republican but more like an Independent that will impose the austerity required by the very banksters we're bailing-out.

It won't solve anything, although that's how the new regime will sell itself, because the bail-out of the BIG BANKS will by-and-large be complete, leaving the taxpayer bankrupt and Goldman Sucks stronger to officially take over the reigns of Sovereign power.

Folks, the bail-outs are dangerous, not because it's bailing-out the rich, but because the purpose of the bail-outs is to purposely bankrupt the United States so a rich oligarchy can rule over mankind, reducing the population to less then a few hundred million people all serving as slaves and serfs to these greedy evil people.

PUT GOLDMAN SUCKS, JP MORGAN BofA, HSBC AND OTHERS INTO RECEIVERSHIP!

[jschmidt27]

So the bondholders get 30 cents on the dollar while the UAW and govt get double that. That is a deal. The Dems need to take care of the UAW or lose the unions support. Any conflict here? The bondholders are geting hosed but that's ok because the are evil retirees, hedge funds or banks. But can't disappoint the UAW. So now will the govt let the company go under while the govt and union own the major shares. No! The govt will be forced to continue to bail them out because the union owns it and we can't let the govt lose the money invested. Adn Obama says they don't want to own it long. So who do they expect will buy it since at anytime the govt could move in and take back control. They did it once. Whatever percentage the bondholders, govt and unions own, they should get that percentage of shares. This is a political decision not a financial one. Let the owners get their money from the dismantling of the company.

[stychokiller]

I hope Chrysler survives. My Wife and I have had good experiences with Chrysler/Jeep vehicles.