Fiat closes deal to take bulk of Chrysler's assets

[Justin Bimmer]

By TOM KRISHER and KIMBERLY S. JOHNSON, AP Auto Writers Tom Krisher And Kimberly S. Johnson, Ap Auto Writers – 23 mins ago

DETROIT – Italy's Fiat is the new owner of most of Chrysler's assets, closing a deal Wednesday that saves the troubled U.S. automaker from liquidation and places a new company in the hands of Fiat's CEO.

The deal creates a leaner company known as Chrysler Group LLC, which is not in bankruptcy protection and is free of billions in debt, 789 underperforming dealerships and burdensome labor costs that hobbled the old Chrysler LLC.

Fiat CEO Sergio Marchionne immediately was named CEO of the new company, which said in a statement that it would soon reopen Chrysler factories that were idled during the bankruptcy process, costing the automaker $100 million per day.

The new company will focus on smaller vehicles, areas in which Chrysler was weak.

"Work is already under way on developing new environmentally friendly, fuel-efficient, high-quality vehicles that we intend to become Chrysler's hallmark going forward," the new company said in a statement.

The Italian automaker won't put any money into the deal but will give Chrysler billions worth of small car and engine technology.

"We intend to build on Chrysler's culture of innovation and Fiat's complementary technology and expertise to expand Chrysler's product portfolio both in North America and overseas," Marchionne said in a statement.

The sale to Fiat SpA marks a victory for the Obama administration, which shepherded Chrysler LLC into Chapter 11 protection on April 30 with the hope that the company would emerge in a matter of months with a new partner.

"This morning's closing represents a proud moment in Chrysler's storied history," said the Treasury Department in a written statement. "The Chrysler-Fiat Alliance has now exited the bankruptcy process and is poised to emerge as a competitive, viable automaker."

The government will loan the new company $4.7 billion, to be repaid within eight years along with interest and $288 million in fees.

The Treasury had given Chrysler LLC $3.3 billion in debtor-in-possession financing to support the company throughout the bankruptcy process. Chrysler LLC remains in bankruptcy court, as it winds down operations, selling plants it doesn't want, dispersing payments to debtholders and settling any other claims that were not transferred to the new company. Those actions could linger until next year, if not longer.

The 56-year-old Marchionne, who won acclaim for his turnaround of Fiat, brings a different style to Chrysler. The year after taking over Fiat in 2004, Marchionne led the company to post its first net profit in five years. He also streamlined its management, burnished the brand with the award-winning update of the Fiat 500 and entered a series of strategic alliances to share costs and enter new markets.

In his first move at the new Chrysler, Marchionne made significant management changes Wednesday, including the appointment of Jim Press as deputy CEO and adviser to help with the management transition.

Press, formerly Toyota Motor Corp.'s top U.S. executive, joined the old Chrysler shortly after it was taken over in 2007 by private equity firm Cerberus Capital Management LP. Press had been vice chairman and president of the old Chrysler.

Chief Financial Officer Ron Kolka will be replaced by Richard Palmer, who was previously CFO for Fiat Group Automobiles. Kolka will head the wind down of the old Chrysler.

Chrysler Group will be divided into four divisions, representing the Chrysler, Jeep, Dodge, and Mopar brands. Peter Fong will become president and CEO of Chrysler brand. Michael Manley will become president and CEO of the Jeep brand and Michael Accavitti will assume the same position for Dodge. Pietro Gorlier, of Fiat Group will run the Mopar division.

Scott Kunselman will replace Frank Klegon as senior vice president of engineering. Klegon has said he will retire.

In a statement, Marchionne said the organization will be designed to give leaders broad control and increase the speed of decision making.

Chrysler CEO Bob Nardelli bid employees farewell in an e-mail obtained by The Associated Press, while Vice Chairman Tom LaSorda already has retired.

On Tuesday, Chrysler won its battle to erase its secured debt after the Supreme Court declined to rule on objections to the sale to Fiat from a trio of Indiana pension and construction funds. The Indiana funds, which hold less than 1 percent of Chrysler's $6.9 billion in secured debt, claimed the sale unfairly favors Chrysler's unsecured stakeholders such as the union ahead of secured debtholders like themselves.

Supreme Court Justice Ruth Bader Ginsburg decided Monday to delay the sale while studying the appeals. But on Tuesday, the court turned down the opponents' last-ditch bid by declining a hearing on the appeals.

Also on Tuesday, Judge Arthur Gonzales approved Chrysler's motion to terminate 789 of its dealer franchises, or about 25 percent of its dealer base.

Many of those dealers closed their doors for good on Tuesday, though some will continue to sell used cars or other brands. Chrysler has maintained that the closures are a necessary part of its plan to cut costs. Jim Press, Chrysler's vice chairman and president, told a Senate committee that the poor performance of many of the dealers slated to lose franchises costs the company $1.5 billion in lost sales each year, along with $150 million in advertising and marketing costs and $33 million in administrative costs.

The dealers had argued that they cover their own costs and little would be gained by terminating their franchises. Chrysler attorneys said the automaker would extend until Monday its program to help the affected dealers send any unsold vehicles to stores that will remain open.

Chrysler's swift passage through about five weeks of bankruptcy proceedings was helped by the involvement of the Obama administration's auto task force, which provided billions in financing and helped negotiate a deal with the company's stakeholders.

Under the agreement brokered in the days leading up to Chrysler's Chapter 11 filing, Fiat will receive up to a 35 percent stake in the automaker in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.

The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake. Fiat would get 20 percent, with the possibility of up to 35 percent.

Meanwhile, the automaker's secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some debtholders, including the Indiana funds, balked at the deal, saying as secured lenders they deserved more. The funds also challenged the constitutionality of the Treasury Department's use of money from the Troubled Asset Relief Program, or TARP, to supply Chrysler's bankruptcy protection financing. They say TARP was earmarked for the financial industry and diverted to the auto industry without Congressional authority.

Consumer groups and individuals with product-related lawsuits also contested a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the asset sale to Fiat. Compensation for such claims would have to come from the parts of the company not being sold to Fiat. But those assets have limited value and it's unlikely there will be anything to pay out.

___

Auto Writer Dan Strumpf in New York and AP writer Martin Crutsinger in Washington contributed to this report.

[z28luvr01]

Just one question - what exactly is the purpose of the Mopar brand? DF, can you shed any light.

[Intrepidation]

Just one question - what exactly is the purpose of the Mopar brand? DF, can you shed any light.

Mopar is the brand name used for official Chrysler parts and accessories.

So this ranges from everything waterpumps to running boards to crate engines.

[z28luvr01]

Mopar is the brand name used for official Chrysler parts and accessories.

So this ranges from everything waterpumps to running boards to crate engines.

That's what I thought, but the way the artcle is worded, it sounded like they were going to begin selling cars under the Mopar nameplate, which would be stupid.

[Intrepidation]

Poor writing on the journalist's part no doubt.

[G. David Felt]

Interesting read, I agree with DF, some poor writing, but then I am also happy for this chapter to close so that the company can get back to the business of making auto's and selling them.

[Intrepidation]

I hope this means we'll get to see the new LX's soon...I can't wait for that. Also looking forward to the production 200C, Avenger replacement, and what small cars Chrysler develops.

I'm amazed bankruptcy went so well and I hope for a brighter future. I hope GM's goes this smoothly like this one.

[Chicagoland]

Mopar is short for Motor Parts, so who would think its a car? But then again, maybe they should ahve just renamed all the cars and trucks as "Mopar"?

Anyway, I wonder what vehicles will get the axe right away. When Iacocca bought AMC, the Alliance and old Eagle 4x4 car [name kept only] were cut first thing. I'd bet on Sebring and Dakota.

[Robert Hall]

That's what I thought, but the way the artcle is worded, it sounded like they were going to begin selling cars under the Mopar nameplate, which would be stupid.

To further confuse matters, fans of Chrysler Corp. cars often refer to them in general as 'Mopars'...i.e. there are magazines like Mopar Action, Mopar Muscle, etc for fans of muscle Mopars (i.e. muscle Chrysler products). I'm particularlly fond of the vintage Mopies--the '70-74 Cuda and Challenger, '68-70 Chargers, Road Runners, GTXes, etc.

[Chicagoland]

Chrysler was able to use same engines in its car brands, but when GM does it, people have panic attacks.

Anyway, lets see how long it takes to get the Fiat 500 into CJD showrooms.

Edited June 10, 2009 by Chicagoland

[ZL-1]

I'm amazed bankruptcy went so well and I hope for a brighter future. I hope GM's goes this smoothly like this one.

It was prepackaged, meaning the deals that had to be done were mosty done before the bankruptcy filing. This way lenghty legal battles were avoided.

I too hope GM's process goes as smoothly as Chrysler's.

[Z-06]

It was prepackaged, meaning the deals that had to be done were mosty done before the bankruptcy filing. This way lenghty legal battles were avoided.

I too hope GM's process goes as smoothly as Chrysler's.

I personally think it will because for one, GM did more wheeling and dealing with the vested parties, especially bondholders and UAW than Chrysler did.

I am glad it ended so fast.

[Robert Hall]

Chrysler was able to use same engines in its car brands, but when GM does it, people have panic attacks.

Anyway, lets see how long it takes to get the Fiat 500 into CJD showrooms.

What is going to be interesting is if we are going to see a 500 branded as a Fiat here or will it be the Dodge Micro or whatever they call a Dodge version? It's not clear to me if Fiat is going to bring the Fiat brand here also? And maybe access to CJD showrooms will accelerate the reintroduction of the Alfa Romeo brand here...

Rob

[ZL-1]

I personally think it will because for one, GM did more wheeling and dealing with the vested parties, especially bondholders and UAW than Chrysler did.

I am glad it ended so fast.

Except for any unpleasant surprises, I think so too. 3 months from now New GM will be out of CH11, and then it will be time to think (long-term) of an IPO and of merging Opel back into GM, trading Sberbank's 35% Opel stake for New GM shares.

[Robert Hall]

Besides the 500, maybe the Qubo will come...could be a competitor for the Cube and xB.

[Intrepidation]

Mopar is short for Motor Parts, so who would think its a car? But then again, maybe they should ahve just renamed all the cars and trucks as "Mopar"?

Anyway, I wonder what vehicles will get the axe right away. When Iacocca bought AMC, the Alliance and old Eagle 4x4 car [name kept only] were cut first thing. I'd bet on Sebring and Dakota.

I would bet at the very least the Nitro, it serves no purpose at all since Jeep has the same thing. The Compass is an uglier version of teh Patriot and teh Caliber, no need for it.

As for the Dakota, I dunno. There is a market for smaller trucks, especially when gas spikes, but the current one is a step backwards from a design standpoint compared to the last generation, the interior is cheap, it's not very good on gas, and the V6 is gutless. Maybe it should go on hiatus until they've got funds to properly redesign it.

[Intrepidation]

To further confuse matters, fans of Chrysler Corp. cars often refer to them in general as 'Mopars'...i.e. there are magazines like Mopar Action, Mopar Muscle, etc for fans of muscle Mopars (i.e. muscle Chrysler products). I'm particularlly fond of the vintage Mopies--the '70-74 Cuda and Challenger, '68-70 Chargers, Road Runners, GTXes, etc.

That's because among Chrysler fans, Mopar is a general term for anything related to Chrysler. We don't refer to Dodges as Chryslers because Chrysler Corp also has Chrysler brand...and that sounds silly.

[A Horse With No Name]

I wish Chrysler and Fiat luck!

Chris

[daves87rs]

Hopefully things will work out...I'm thinking they will....

[MyerShift]

I am so thankful that this part is done.

Now, let's get the revolution going.

[Robert Hall]

That's because among Chrysler fans, Mopar is a general term for anything related to Chrysler. We don't refer to Dodges as Chryslers because Chrysler Corp also has Chrysler brand...and that sounds silly.

Exactly..

Long live Mopar. I'm optimistic for the future. I've really interested in seeing how the NG GC turns out, and wouldn't mind having a white Challenger R/T sometime down the road...