Chairman and CEO Robert Nardelli says he will step down after Chrysler LLC exits bankruptcy and the auto maker will shut down most of its North American manufacturing operations until that process is completed, something Chrysler expects to take just 30-60 days.
Vice Chairman and manufacturing head Tom LaSorda also will leave the company, saying he will retire at an undetermined date. Jim Press, vice chairman in charge of sales, says he doesn’t know whether he’ll remain with the auto maker.
Chrysler filed for Chapter 11 protection today in the U.S. Bankruptcy Court for the Southern District of New York.
The restructuring plan calls for Italy’s Fiat Auto Group to take a 20% stake in Chrysler in exchange for providing future vehicle technology and building new vehicles and powertrains in U.S. plants.
Fiat can increase its holding to 25% once it brings a 40 mpg (5.9 L/100 km) vehicle platform to Chrysler. It will have the option on an additional 5% for providing a fuel-efficient engine family. The final 5%, taking its holdings to 35%, can be purchased once Fiat begins exporting U.S. vehicles for sale through its global network. Fiat would be free to take a majority stake in Chrysler once all U.S. loans are repaid.
Fiat CEO Sergio Marchionne says he will be “spending a great deal of time” over the next weeks and months meeting with Chrysler employees and touring facilities.
“While our agreement must necessarily go through the U.S. legal system for a few weeks, we will be preparing ourselves to reemerge quickly as a reliable and competitive auto maker,” he says.
The deal with Fiat was the last critical piece in Chrysler’s survival plan, with the United Auto Workers union having earlier ratified a concessionary deal that would allow Chrysler to substitute stock for cash to back the union-managed Voluntary Employee Beneficiary Assn. fund for retiree health-care benefits. When the transaction is completed, the VEBA will hold a 55% share in the new Chrysler.
Daimler AG gave up its remaining 19.9% stake in Chrysler and agreed to provide $600 million in pension funding over three installments between now and 2012.
Chrysler convinced most of its lenders to forgive $6.9 billion in debt in exchange for $2 billion in cash, though some debt holders refused to accept those terms.
That drew ire from President Obama, who said the rogue lenders were trying to hold out “for the prospect of an unjustified, taxpayer-funded bailout.
“They were hoping that everybody else would make sacrifices and they would have to make none,” he says. “Some demanded twice the return that other lenders were getting.
“I don’t stand with them. I stand with Chrysler’s employees and their families and communities. I stand with Chrysler’s management, its dealers and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars.”
For its part, the U.S. government has agreed to provide up to $8 billion to back Chrysler, including up to $3.5 billion in bankruptcy financing and another $4.5 billion in exit financing. The Canadian government also reportedly will chip in $3.2 billion in funding.
Moments after President Obama announced Chrysler would enter bankruptcy as a result of some lenders and hedge funds refusing to accept concessions, Nardelli released a letter to employees saying he would exit once the restructuring process is completed. He says he will return as an advisor to Chrysler’s controlling stakeholder Cerberus Capital Management LP.
“With the U.S. government approval of our viability plan and the completion of an agreement in principle for the alliance, this is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat,” Nardelli writes. “I will work closely with all of our stakeholders to complete the restructuring and see that this new company swiftly emerges with a successful closing of the alliance.”
Although he says bankruptcy was “not my first choice” and that he is “personally disappointed” as a result of the action, Nardelli says the deal with Fiat will allow both to “fully optimize” their manufacturing footprints and global supplier bases.
“Each company will gain access to new markets, including distribution of Chrysler vehicles to areas outside of North America, and potential distribution of Fiat vehicles through Chrysler’s dealerships in North America.”
Chrysler will use Section 363 under the bankruptcy code to allow principal assets to be sold to Fiat, putting only unwanted operations through the bankruptcy process. The auto maker says none of its Canadian, Mexican or other international properties will be part of the proceeding.
“The substantial majority of Chrysler’s assets, operations, plants and people will be transferred to the new company, while assets and liabilities that are not consistent with our business plan will remain with the old company for disposition,” Nardelli says in the letter.
“The old company and its remaining assets will proceed through a Chapter 11 process, during which these assets may be sold or otherwise liquidated.”
Chrysler says it is in the process of identifying and finalizing the list of assets to be disposed.
“Once this is complete and we are asked to share it with the court, we also will share it with you.”
Chrysler says in a statement the new company that results will continue to sell vehicles under all three brands, Jeep, Dodge and Chrysler and maintain parts operations under the Mopar brand.
Chrysler Financial will cease to exist, however. Obama says Chrysler Financial is no longer viable. GMAC, which like Chrysler Financial is controlled by Cerberus, will take over consumer and dealer financing for Chrysler operations.
In an interview in December with Ward’s, Nardelli said he had no regrets over taking the top job at Chrysler, despite the unexpected difficulties.
“I don’t look back and kick the dirt and say, ‘Gee, ain’t it awful?’” he said. “I’m frustrated because we have so many good things going.”
“These are the kinds of things CEOs look for. They look for the challenge.”
– with Eric Mayne