Chrysler Bankrupt: UAW, Fiat to Take Shares in Restructured Company

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Author: Todd Lassa

A Fiat 500 built in Canada, Mexico or the United States may be the first product of the newly minted Chrysler LLC-Fiat Auto alliance. Chrysler LLC filed for bankruptcy and completed its deal with Fiat after the United Auto Workers agreed to concessions and four major banks agreed to cut debt to one third of current value in exchange for 15 percent of the new company. Only one group held out for more.

"Investment firms and hedge funds decided to wait for an unjustified government bailout," President Obama said. "Some demanded twice what others were getting." Obama's hope is that Chrysler will emerge in 30 to 60 days a financially healthier company. The UAW gets 55 percent of Chrysler, Fiat gets 20 percent, the U.S. government gets eight percent, and the governments of Canada and Ontario split two percent.

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CEO Bob Nardelli leaves Chrysler after the bankruptcy is completed, but expects to remain in Cerberus's employ. Co-president Tom LaSorda will retire, probably before the bankruptcy process concludes. Co-president Jim Press, the Toyota veteran, is considered likely to stay on. There's speculation that Fiat chairman Sergio Marchionne will replace Nardelli, serving as a Carlos Ghosn-like two-company chief. Marchionne can run an American automaker, goes the speculation, because he was trained -- as an accountant -- in Canada.

As for the Fiat 500, co-president Tom LaSorda said, "it is a product highly considered to be built in the NAFTA region."

WHAT CHRYSLER GETS:
"Billions of dollars in advanced technology and intellectual property" plus Fiat's global distribution network. UAW concessions on wages, benefits, and retiree health, four large creditors taking $2 billion for their $6.9 billion in secured claims. Daimler gives up its 19.9-percent share of Chrysler and contributes $600 million to pensions. A new board, with the Treasury department picking four directors and Fiat choosing three, one of them a Fiat employee.

WHAT FIAT GETS:
Manufacturing, distribution of Fiats and Alfa Romeos in the U.S., the Fiats probably as Chrysler and/or Dodge models, the Alfas as Alfas, within 18 months. 20 percent of Chrysler initially. It can earn up to 35 percent in five-point increments if it meets such performance metrics as introducing a Chrysler factory-produced vehicle that gets 40 mpg, provides Chrysler with distribution in various foreign markets and manufactures state-of-the-art, next-generation engines at a Chrysler factory.

The U.S. will loan what it calls New Chrysler an additional $4.7 billion, the final payment due in eight years. Fiat cannot take majority stake in Chrysler until the federal loans are paid off.