U.s. Completes Bankruptcy Plan As Chrysler Talks Go Down To Wire

April 30, 2009|By The Washington Post

WASHINGTON -As time for a deal wound down Wednesday, the Obama administration finalized a plan to send Chrysler into bankruptcy, replace chief executive Robert Nardelli and pump billions of dollars more into the effort, all in hopes the company can emerge from court proceedings as a re-energized competitor in the global economy.

The government's attempt to save the automaker amounts to another extraordinary intervention in the U.S. economy, but what would happen by Thursday's deadline for making a deal wasn't clear.

Members of the United Auto Workers overwhelmingly ratified a settlement deal with Chrysler on Wednesday night.

The UAW says 82 percent of production workers and 80 percent of skilled-trades workers voted for the agreement in balloting that took place at UAW Chrysler locations throughout the U.S. Ninety percent of office and clerical workers and 94 percent of UAW-represented engineering workers voted in favor.

The agreement, which will take effect Monday, 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.

While government officials clung to 11th-hour hopes that bankruptcy could be averted, the administration has drawn up a detailed court strategy in which the ownership of Chrysler would be drastically reordered, the U.S. and Canadian governments would contribute billions of dollars more and the leadership of Italian automaker Fiat would take over company management.

Company and government officials fear that a bankruptcy would stain the brand, shake customer confidence and erode sales. But if it becomes necessary, the administration would seek to use the process to create a new Chrysler company. Its ownership would be divided, with the company's union retiree health fund receiving a 55 percent stake, Fiat would claim as much as a 35 percent share and the United States would take 8 percent. The Canadian government would receive two percent.

The automaker's current majority owner, the private-equity firm Cerberus Capital Management, would have its holdings wiped out.

During the bankruptcy, the governments would provide about $4 billion in new funds, with 80 percent coming from the United States and 20 percent from Canada, which hosts a number of Chrysler operations. As the company emerged from its reorganization, the United States would provide roughly another $5 billion, with more coming from Canada, the sources said.

Even if the company avoids bankruptcy, the Obama administration would probably impose many of the planned changes in ownership and management anyway, making the restructuring a landmark event in U.S. economic policy.

The government plan also calls for ensuring that Chrysler maintains substantial U.S. manufacturing operations. It requires that at least 40 percent of company sales volumes remain manufactured domestically, or for the company's total production in this country to remain at least at 90 percent of its U.S. production last year.

The Associated Press contributed to this article.

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