Chrysler fights for deal to avoid bankruptcy
Ailing car giant Chrysler began a marathon bankruptcy court hearing to persuade a judge to allow its plan to sell most of its assets to Italian carmaker Fiat and save itself from liquidation.
The company was waiting to see whether Judge Arthur Gonzalez would approve the sale despite protests from a group of Indiana state pension and construction funds that hold less than 1% of Chrysler’s secured debt.
If Judge Gonzalez agrees the sale, Chrysler could emerge from bankruptcy within weeks.
After hearing about nine hours of testimony in New York, the judge adjourned the hearing until today and anticipated it could stretch through tomorrow.
Lawyers for Chrysler say unloading the assets to a group led by Italy’s Fiat Group SpA is the company’s only hope to avoid selling itself off piece by piece. They say a leaner Chrysler could shift more easily to smaller, more fuel-efficient cars.
But many Chrysler dealers, bondholders and former employees say they are being steamrolled by the bankruptcy proceedings. Fiat could back out if the deal does not close by June 15.
However approval of the sale would put Chrysler on track for a quick exit from bankruptcy protection, defying sceptics who insisted such a filing would leave the company stuck in court for many months.
Both Chrysler and General Motors, which now appears almost certain to file for bankruptcy protection, have been hobbled by the health and pension costs of tens of thousands of unionised pensioners, in addition to slumping sales.
Bringing Chrysler and Fiat together would dramatically change the face of America’s third-largest carmaker. The current plan calls for Fiat to bring a handful of its small cars to the US in the coming years, filling one of Chrysler’s biggest product gaps and pleasing a White House intent on making the US fleet of cars greener.
Chrysler itself entered bankruptcy with a handful of new vehicles in the works. It plans to begin selling an electric car next year and have six electric vehicles on the road by 2014.
But even if Chrysler comes out of bankruptcy, its challenges are just beginning. Until the Fiat vehicles arrive it will have to rely on a product line-up that lost billions of dollars last year.
Even then, there is no guarantee Fiats will sell in the US, where they will compete against small cars from established makers like Hyundai and Kia.
By yesterday, parts suppliers, dealers, former employees and other groups had filed 337 objections to the Chrysler-Fiat deal, although most had been resolved or deferred before the start of the hearing.
Some of the strongest opposition to the sale came from lawyers representing a pair of Indiana state pension funds and a state construction fund that bought Chrysler debt last year.
Tom LaSorda, who was Chrysler’s vice chairman and president, but retired after the firm went into bankruptcy reorganisation, was questioned for more than an hour about Chrysler’s search for a global partner and how the deal with Fiat came to be reached.
“There was nobody out there that was willing to provide a cash infusion,” Mr LaSorda said of Chrysler’s search for a partner.
“But Fiat brought technology and platforms that were just as valuable or even better.”
Robert Manzo, an executive director with the restructuring group Capstone Advisory Group and one of Chrysler’s top financial advisers, gave evidence for more than four hours.
He said the debtholders were the main roadblock that kept Chrysler from restructuring out of court, and Chrysler had offered them a majority stake in the new company, but they refused to negotiate.
But Alfredo Altavilla, Fiat’s chief executive for powertrain technologies and head of business development, later said it was doubtful Fiat would have gone through with the deal had Chrysler not filed for bankruptcy protection, regardless of what happened with the debtholders.
Early in the hearing, Judge Gonzalez denied a motion by the Indiana state funds’ lawyers for more time to prepare for the sale hearing.
The three funds bought Chrysler debt last year and hold a combined £26.5m (€30.5m) of the company’s total £4.3bn (€4.95bn) in secured debt.
In the days leading up to its bankruptcy filing, Chrysler reached an agreement with most of its bondholders in which they would receive a combined £1.25bn (€1.44bn) in a deal worth 29 cents on the dollar.
But some bondholders refused to support it, saying that as secured lenders they deserved more.
