The rank-and-file approved, on April 29, a deal between the United Auto Workers union and Chrysler LLC that involves major new concessions by workers that will help the automaker slash costs and hang on in its bid for survival.
As the workers, once again, did more than their part to keep the car company in business, refusal by some of the car company’s creditor’s to do their part threatened to sink the deal. Talks between the Treasury Department and some of the bankers failed April 29 without an agreement. The Obama administration decided, then, to force Chrysler LLC into bankruptcy protection.
President Obama is scheduled to announce the final deal today, saying Chrysler will need a stay in bankruptcy court to wipe away some of its debts and liabilities.
“While the administration was willing to give the holdout creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success,” an administration official said this morning. “Their failure to act in either their own economic self-interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to emerge stronger going forward.”
At least three of Chrysler’s 46 lenders refused to accept a deal to exchange $6.9 million in debt for $2 billion in cash. The Treasury Department on Wednesday raised that offer to $2.25 billion, but backed out late in the day after rejections from some lenders.
Four major lenders holding 70 percent of the debt agreed to the deal a day earlier, however, giving Chrysler an improved chance of quickly emerging from any bankruptcy.
The deal approved by auto workers had several main features:
• In exchange for concessions, the UAW is to get a 55 percent stake in Chrysler. It should be noted that this does not involve the holding of any type of voting stock. The union gets only one member of the board. Money made as a result of the 55 percent stake is earmarked for payment of retirement benefits, only.
• Italian auto maker Fiat gets a 35 percent stake in Chrysler.
• The U.S. government and Chrysler creditors will split a 10 percent remaining stake.
• Fiat will provide engine technology – 3.0 liter diesel and 1.4 liter gasoline engines that the UAW says will be the equivalent to an investment of $8 billion and create 4,000 new UAW jobs.
• Cost of living allowances for workers will be suspended.
• Workers will lose Easter Monday as a holiday.
• Workers will lose annual performance bonuses.
• Workers will lose Christmas bonuses.
All the major interested parties, including the union, the administration says, support the move into bankruptcy.
The union and Michigan’s congressional delegation had been strongly opposed to bankruptcy, which labor sees as a legal cover for tearing up workers’ contracts.
The company executives had opposed bankruptcy because they felt consumers, with so many car companies to choose from, would not purchase from a bankrupt company.
To counter that argument the Obama administration announced last month that it was creating a $1.25 billion program to guarantee the warranties of GM or Chrysler vehicles if the companies were forced into bankruptcy or for any other reason couldn’t honor the warranties.
Under bankruptcy the company’s good assets could be auctioned, most likely purchased by the government, while the bad assets would be left behind in bankruptcy court to be liquidated. The administration is planning to provide about $3.2 billion in debtor-in-possession financing, while the Canadian government will provide about $800 million, or 20 percent.
CEO Robert Nardelli is expected to be replaced as part of the overall deal.
Chrysler, in the 1930’s, was the second largest U.S. car company. By 1980 it was almost in bankruptcy – saved by a $1.5 billion government loan guarantee, which it paid off. In 1998 it was sold for $36 billion to Daimler-Benz. In 2007 the German carmaker sold it to Cerberus Capital Management for $7 billion.