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Chrysler Apr 30th 2009 - From Economist.com

End of the road


Chrysler is forced to file for bankruptcy, but a deal has also been done with Fiat


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AFTER a week, the effortto save Chrysler from bankruptcy failed. Barack Obama announced on Thursday April 30th that last-ditch negotiations between the Treasury and secured creditors broke down. However, Mr Obama confirmed adeal with Fiat, an Italian carmaker, offering a reorganised Chrysler a realistic prospect of emerging from bankruptcy quickly.
The government will stump up $3.5 billion in debtor financing and up to$4.7 billion when the alliance with Fiat goes ahead. Mr Obama hopes that Chrysler will emerge from “surgical” bankruptcy in between 30 and 60 days. He insisted that this amounted to the “necessarysteps” to give Chrysler “a new lease of life”.
On Monday the United Auto Workers (UAW) union agreed to a series of concessions, including the suspension of cost-of-living adjustments, restrictions onovertime pay and, most dramatically, that half of Chrysler’s contribution to a union-managed health-care fund for retired workers could be paid in the form of a big equity stake, rather than cash.
Thenext day, a group of four lenders —JPMorgan Chase, Goldman Sachs, Citigroup and Morgan Stanley— holding 70% of Chrysler’s $6.9 billion of secured loans caved into demands that they swap their debt for$2 billion in cash. However, as they were in a weak position to resist political pressure, they voted on Wednesday to take their chances of getting a better settlement from a bankruptcy court.
MrObama and Sergio Marchionne, Fiat’s boss, appear confident that enough groundwork has been done to allow a “surgical” bankruptcy to pay off debtholders, taking no more than three or four weeks tocomplete. Bankruptcy should also make it easier for the “new” Chrysler to shed unwanted dealers and other liabilities.
The administration dismisses the possibility of Chrysler’s being broken up. Fiat...