Chrysler Hands Keys To Fiat

Finalized Deal Gives Italian Automaker Bulk Of Good Assets, Clears Way For Chrysler To Emerge From Bankruptcy

(CBS/ AP)  Last Updated at 12:10 p.m. ET

Chrysler avoided liquidation and moved closer to emerging from bankruptcy Wednesday after it finalized a deal to sell the bulk of its good assets to Italy’s Fiat.

The deal, which places the new company in the hands of Fiat’s CEO, clears the way for a new, leaner Chrysler Group LLC to emerge from bankruptcy protection minus billions in debt, 789 underperforming dealerships and burdensome labor costs that nearly sank the storied automaker.

Fiat CEO Sergio Marchionne immediately was named CEO of the new company, which said in a statement that it would soon reopen Chrysler factories that were idled during the bankruptcy process, costing the automaker $100 million per day.

The new company will focus on smaller vehicles, areas in which Chrysler was weak.

"Work is already under way on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler's hallmark going forward," the new company said in a statement.

The Italian automaker won't put any money into the deal but will give Chrysler billions worth of small car and engine technology.

"We intend to build on Chrysler's culture of innovation and Fiat's complementary technology and expertise to expand Chrysler's product portfolio both in North America and overseas," Marchionne said in a statement.

The sale to Fiat SpA marks a victory for the Obama administration, which shepherded Chrysler into Chapter 11 protection on April 30 with the hope that the company would emerge in a matter of months with a new partner.

Marchionne immediately made management changes, including the appointment of Vice Chairman and President Jim Press as deputy CEO and adviser to help with the management transition.

Press, formerly Toyota Motor Corp.'s top U.S. executive, joined Chrysler shortly after it was taken over in 2007 by private equity firm Cerberus Capital Management LP.

In a statement, Marchionne said the organization will be designed to give leaders broad control and increase the speed of decision making.

Chrysler CEO Bob Nardelli bid employees farewell in an e-mail obtained by The Associated Press, while Vice Chairman Tom LaSorda already has retired.

Marchionne, in an e-mail to Chrysler employees Wednesday, expressed confidence that Fiat will be able to turn Chrysler around.

He wrote that he stepped into a similar situation five years ago at Fiat, which at the time was perceived as a failing, bureaucratic automaker that made low-quality cars. Yet most of the people capable of remaking Fiat were there all the time, he wrote.

"We have remade Fiat into a profitable company that produces some of the most popular, reliable and environmentally friendly cars in the world," he wrote. "We created a far more efficient company while investing heavily in our technologies and platforms. And, importantly, we created a culture where everyone is expected to lead. We can and will accomplish the same results here."

The sale’s closing involves Chrysler transferring $2 billion - provided by the U.S. government - to its creditors, reports CBS News correspondent Bianca Solorzano.

On Tuesday, Chrysler won its battle to erase its secured debt after the Supreme Court declined to rule on objections to the sale to Fiat from a trio of Indiana pension and construction funds. The Indiana funds, which hold less than 1 percent of Chrysler's $6.9 billion in secured debt, claimed the sale unfairly favors Chrysler's unsecured stakeholders such as the union ahead of secured debtholders like themselves.

Supreme Court Justice Ruth Bader Ginsburg decided Monday to delay the sale while studying the appeals. But on Tuesday, the court turned down the opponents' last-ditch bid by declining a hearing on the appeals.

Also on Tuesday, Judge Arthur Gonzales approved Chrysler's motion to terminate 789 of its dealer franchises, or about 25 percent of its dealer base.

Many of those dealers closed their doors for good on Tuesday, though some will continue to sell used cars or other brands. Chrysler has maintained that the closures are a necessary part of its plan to cut costs. Jim Press, Chrysler's vice chairman and president, told a Senate committee that the poor performance of many of the dealers slated to lose franchises costs the company $1.5 billion in lost sales each year, along with $150 million in advertising and marketing costs and $33 million in administrative costs.

The dealers had argued that they cover their own costs and little would be gained by terminating their franchises. Chrysler attorneys said the automaker would extend until Monday its program to help the affected dealers send any unsold vehicles to stores that will remain open.

Chrysler's swift passage through about five weeks of bankruptcy proceedings was helped by the involvement of the Obama administration's auto task force, which provided billions in financing and helped negotiate a deal with the company's stakeholders.

Chrysler maintained that if it lost Fiat, the only alternative for the company would have been liquidation, reports CBS News correspondent Anthony Mason.

Under the agreement brokered in the days leading up to Chrysler's Chapter 11 filing, Fiat will receive up to a 35 percent stake in the automaker 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. Fiat would get 20 percent, with the possibility of up to 35 percent.

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 debtholders, including the Indiana funds, balked at the deal, saying as secured lenders they deserved more. The funds also challenged the constitutionality of the Treasury Department's use of money from the Troubled Asset Relief Program, or TARP, to supply Chrysler's bankruptcy protection financing. They say TARP was earmarked for the financial industry and diverted to the auto industry without Congressional authority.

Consumer groups and individuals with product-related lawsuits also contested a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the asset sale to Fiat. Compensation for such claims would have to come from the parts of the company not being sold to Fiat. But those assets have limited value and it's unlikely there will be anything to pay out.

[rhs648]

"Socialism, public and private, it's all around us. Think about it. Ask yourself where did your benefits come from and how did they start? The answer might be surprising. "

That was an excellent post. My business also provides a lot of things not required by law. As stated, pure capitalism would not provide things such as a pension, health insurance benefits, unemployment insurance, vacations, childcare, maternity leave, etc. All of these things take away from a company's profits. In the case of a small business, the costs comes right out of the owner's pocket. As the poster stated, we already enjoy many, if not more, of the things provided by a socialist system. These things are already blended into our system.

[rickwar]

I've had enough of you cry babies calling Obama a 'commie' for baling out the Auto makers. What choice did he have? Let them go belly up, putting 10s of thousands out of work? Not only those who work for Chrysler and GM, but suppliers, and other businesses frequented by employees of those companies, and even more foreclosures.
Nixon, Ford, and George W Bush all pushed for government bailouts of private businesses when they were in trouble.. were you out there calling them Commies too? I don't think so!
Posted by nolalou at 8:08 PM : Jun 10, 2009


Because they don't know history, they really don't know what the true meaning of the words they throw around.

In most cases it's always alright for them to say let a company go bankrupt, let someone lose their home, get rid of uninon workere or workers period. Until, it happens to THEM.

I've owned a number of businesses over the years, worked in large companies, currently have six locations with three different types of business. I employ people, pay them well have little turn over pay health insurance for them (which by the way costs me over 110,000 per year)

The reason I mention this is simple, when folks start talking about "Socialism" they don't realize they already have it. If your employer pays for your healthcare, sorry to tell you, that's socialism.

True capitalism means I give you a job, I pay you for your time or whatever method of pay I arive at that YOU decide to take. That's it, period. I keep as much profit as I can grow my business and my personal wealth. I owe you nothing more, the rest is up to you.

I don't need to fund or add to your 401k, I don't need to pay for your retirement, I don't need to pay for your healthcare I don't need to fund your unemployment, I don't need to give you a vacation, YOU are responsible for all that, not me and I don't have to give you any other "goodies" you think you deserve.

However if I share some of my profits with you in any way for moral reasons or to make me feel good, that's a form of socialism. Got that? I'm transferring some of my wealth to you.

The fact is we are surrounded with forms of Socialism each day both from the private side and government side.

Get over it.

And just so you know
I'm not the "capitalist" from above:

My employees get:

Two weeks paid vacation from the day they start
Healthcare
Paid holidays
Higher wages than my competition
Full IRS mileage if they travel
401k which I start with 10,000 in the fund
Sick days
Commissions on top of salary
Year end performance bonus
Uniforms or clothing allowance
and many other perks

Why? Because people are worth their labor and time. I've only added people, I've not had anyone leave in 10 years. I also kow how much it costs to train new people. And guess what? I still take a very nice profit for myself.

Socialism, public and private, it's all around us. Think about it. Ask yourself where did your benefits come from and how did they start? The answer might be surprising.

[mav547166]

Its too bad that Ford is the only car maker that managed to toe the line, but you can bet I will not be buying a GM or Fiat/Chrysler products anytime soon. They should enjoy that taxpayer money while they can because the gravy train is going to be over when the dems realize that organized labor aint worth losing power.

[rhs648]

Fiat should direct Chrysler to reduce size and weight of car designs. This move will improve miles per gallon and ecology. List prices are too high. Auto Makers spent a great deal of money purchasing material like steel for the vehicles. Americans need a cheap deal. Highways are fast and sophisticated. Car model engineers must take advantage.
Posted by sean58z

The decline of GM and Chrysler are the markets at work. Whether their problems resulted from faulty management, the auto workers union, poor quality, buiding cars people dont want, or a combination of these things, the markets dictate the success or decline of a product. Now our government is intering with the market forces at work. This is being done at a large cost to American taxpayers and bond holders. Time will tell whether this interence is worthwhile or a mistake. What we do know at this point is that another American company is in the hands of a foreign company.

[sean58z]

Fiat should direct Chrysler to reduce size and weight of car designs. This move will improve miles per gallon and ecology. List prices are too high. Auto Makers spent a great deal of money purchasing material like steel for the vehicles. Americans need a cheap deal. Highways are fast and sophisticated. Car model engineers must take advantage.

[harpoot]

The future cars from Fiat-Xler can only get better. Enough of the old gas guzzling junk.

[rhs648]

In fact, because of their poor aerodynamics and lack of stability, most of those big, bad SUVs and trucks have speed limiters and cannot exceed 110 mph. Most cars don't have that limitation.
Posted by incog-nito

Perhaps all vehicles should have speed limiters. It seems silly to even comtemplate driving at such breakneck speeds. The real issue is that another American company is in the hands of a foreign manufacturer. Is this the outcome most American taxpayers envisioned when their tax dollars are being used to prop-up the auto industry?

[batchitcrazy]

An American car company owned by Italians. Gotta love it!!!!!!!!
Posted by tiredofthebs at 8:29 PM : Jun 10, 2009
------------------------------------
I almost cried to learn Smith&Wesson was no longer in US hands....

[randomlybanned]

"I've had enough of you cry babies calling Obama a 'commie'"

Um, it's called freedom of speech - look it up! While we still have it, we intend to use it.

[tiredofthebs]

An American car company owned by Italians. Gotta love it!!!!!!!!

[nolalou]

The one Chrysler that I did own, a Town & Country, was a big piece of junk. It should have been named CRYsler. If Fiat can reshape the company and produce a product that people actually want to buy then maybe the company will survive. I don't know that much about Fiat but I don't recall ever seeing a Fiat and thinking "I got to have one of these". We'll see what happens. Too bad the government has to get involved but then again what do you expect from a Commie wannabe like Obama.
Posted by kfor777

I've had enough of you cry babies calling Obama a 'commie' for baling out the Auto makers. What choice did he have? Let them go belly up, putting 10s of thousands out of work? Not only those who work for Chrysler and GM, but suppliers, and other businesses frequented by employees of those companies, and even more foreclosures.
Nixon, Ford, and George W Bush all pushed for government bailouts of private businesses when they were in trouble.. were you out there calling them Commies too? I don't think so!

[lucytomato]

We have the best battleplane F-22, F-35,the best bomb carrier B-2,and many other best ones,but we have weak Auto-maker,as we know, before 2006 ,or even earlier ,samller cars,which is more fuel-efficient ,has always been spreading all over the world .but American Auto ,like Chrysler still move slowly,AT last during this economic crisis ,we fail ,we can not defeat Japan cars ----why then??

[kfor777]

The one Chrysler that I did own, a Town & Country, was a big piece of junk. It should have been named CRYsler. If Fiat can reshape the company and produce a product that people actually want to buy then maybe the company will survive. I don't know that much about Fiat but I don't recall ever seeing a Fiat and thinking "I got to have one of these". We'll see what happens. Too bad the government has to get involved but then again what do you expect from a Commie wannabe like Obama.

[randomlybanned]

"The sale?s closing involves Chrysler transferring $2 billion - provided by the U.S. government - to its creditors."

So Chrysler is essentially just another branch of Obama Motors. Smooth move, President ObamaMarx!!!

[sjc_1]

"Who really believes that Fiat has technology that advanced?"

Fiat does have good small engine designs. They have a very advanced 1.8 liter that just came out. Fiat has been out of the U.S. market about 20 years, now they have a chance to get back in. They own Ferrari and Maserati so they know engines.

[incog-nito]

In fact, because of their poor aerodynamics and lack of stability, most of those big, bad SUVs and trucks have speed limiters and cannot exceed 110 mph. Most cars don't have that limitation.

[incog-nito]

You are correct I have not owned one. I was on the web site and I was wondering how will a 1.3 leiter auto get up to speed on I95 in south Florida. Just my thought
Posted by dwilson59 at 4:40 PM : Jun 10, 2009

A 1.3 liter in a small car can do 100 mph all day long. Don't ask me how I know.

[dwilson59]

That is great Fix it Again Tony
Posted by dwilson59 at 2:48 PM : Jun 10, 2009

Ever driven one lately? Ever owned one? Not the Fiat of the 60's 70's or eighties.
Posted by at 3:13 PM : Jun 10, 2009

You are correct I have not owned one. I was on the web site and I was wondering how will a 1.3 leiter auto get up to speed on I95 in south Florida. Just my thought

[picklepants7]

Fix It Again Tim! of all the car companies, come on. why not ferrari or alfa romeo? anyway, i have a theory why obama chose fiat, and don't tell me he didn't. if he didn't like fiat, this deal would have never gone through. because they make the smallest cars, which is the norm in italy. when i was last in italy visiting family, that's just about all you saw because the streets there are so narrow, it's the only way to get around. actually i'm looking forward to see italians spicing up the boring cars chrysler has made in the past. i wish them well. could be a blessing.

[pw08-2009]

How does it feel to everyone here theat America is owned by China and other countries...does that make you proud? American corporations and our own government have sold the American people out.