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Chrysler files for bankruptcy

Chrysler has filed for bankruptcy with an alliance to follow with Fiat
CarsGuide team

30 Apr 2009 • 4 min read

Chrysler announced it had filed for Chapter 11 bankruptcy, and will form a new global company with Italian carmaker Fiat. Chrysler’s Australian and other international operations are not part of the bankruptcy filing.

Chrysler Australia spokesman Jerry Stamoulis says that for the moment it is "business as usual" for the local arm of the company.

"We will have a close look at the details of the arrangements throughout the day, but we are not part of the bankruptcy filing and for now there is no change to our business," Stamoulis says.

 

His comments echo those of the carmaker’s chief executive officer Bob Nardelli. "We want to personally assure everyone that the new company will produce and support quality vehicles under the Jeep, Dodge and Chrysler brands as well as parts under the Mopar brand," Nardelli said in a statement.

"Chrysler employees will become employees of the new company. Chrysler dealerships remain open for business serving our customers. All vehicle warranties will be honored without interruption and consumers can continue to purchase our vehicles with complete confidence."

Chrysler says it has reached an agreement in principle to establish a global strategic alliance with Fiat will allow both to optimise their respective manufacturing footprints and the global supplier base, while providing each with access to additional markets. Fiat powertrains and components will also be produced at Chrysler manufacturing sites.

When the deal is finalised, the auto workers union will own 55 percent of the new company and the US and Canadian governments will own 10 per cent between them.

Fiat will initially own 20 per cent of Chrysler and will have the right to increase its stake to 25 percent in three increments as it meets the following criteria: 5 per cent for bringing a 40mp/g (5.8l/100km) vehicle platform to Chrysler to be produced in the US; 5 percent for providing a fuel-efficient engine family to be produced in the US for use in Chrysler vehicles; and 5 percent for providing Chrysler access to its vast global distribution network to facilitate the export of Chrysler vehicles. Fiat cannot become a majority owner until after all US government loans have been completely repaid.

As a part of the restructuring, most manufacturing operations will be idled from Monday and normal production schedules will resume when the deal is finalised, expected to be within 30 to 60 days.

The filing comes after a memo to Chrysler employees from Nardelli earlier this week, saying the company was hoping its 46 main creditors would accept $2 billion to wipe out $6.9 billion in secured debt.

Chrysler says that, despite substantial progress on many fronts, it was not able to obtain the necessary concessions from all of its lenders, which would have avoided the need for a bankruptcy proceeding.

As a result, under the direction of the US Treasury, Chrysler LLC and 24 of its wholly owned US subsidiaries filed voluntary petitions under Chapter 11 of the US Bankruptcy Code in New York late yesterday.

The Chrysler move follows General Motor’s bid to survive by offering the US Government a controlling interest in a bid to shed debt, and hinting that it could be forced to file for bankruptcy if the deal is not accepted.