According to reports from multiple media sources, President Barack Obama will personally announce that Chrysler has filed for Chapter 11 bankruptcy protection at noon Eastern time today. The move does not mean Chrysler will cease operations or be liquidated. Instead, it protects Chrysler from creditors while the automaker takes steps to reorganize and negotiate a partnership agreement with Italian automaker Fiat.

Citing an “Obama administration official,” Bloomberg reports, “Chrysler LLC will proceed today with a Chapter 11 bankruptcy filing to reorganize into a more viable carmaker in a partnership with Italy’s Fiat Spa.”

Chrysler had come close to avoiding bankruptcy, negotiating significant concessions from both American and Canadian auto workers unions, and coming to an agreement with its largest creditors of the disposition of billions of dollars in debt. However, despite cutting labor costs and reducing debts, Bloomberg reports, “The failure of some small creditors to agree to a final settlement is prompting the bankruptcy option.”

Negotiators apparently worked until the last minute. Marketwatch reports, “Wednesday night, Obama said he was ‘very hopeful’ that Chrysler and the government would reach a deal to ensure the company’s viability.”

Chrysler, Fiat and the White House’s auto industry task force all plan to use the bankruptcy process to help the company restructure. The New York Times reports, “The automaker…would file for bankruptcy first. It subsequently would present an agreement with Fiat to the court for approval, possibly on Monday.”

The Wall Street Journal adds, “Administration officials, who have been braced for a Chrysler bankruptcy filing for weeks, say all the pieces are in place to get the company through the court quickly, perhaps in a matter of weeks.” The plan will face opposition. “A trip through the courts will open a new chapter of uncertainty as the company’s lenders and its thousands of affiliated dealers could mount a series of legal challenges to the administration’s efforts to pull off a swift reorganization.” But, “If the Obama administration’s calculations are correct, the process should pave the way for Italian auto maker Fiat to take over the American company.”

Chrysler’s process may be a prelude to a larger auto industry bankruptcy down the road. The New York Times notes, “A bankruptcy filing by Chrysler would be the first by one of Detroit’s three auto companies amid a devastating slump, and could serve as a preview of what a filing by General Motors might look like.” The Obama administration deliberately staggered the restructuring deadlines it gave Chrysler and GM, perhaps foreseeing this possibility, meaning that “G.M., which like Chrysler received federal assistance last year, faces a June 1 deadline for its own restructuring.”

If you’re in the market for a new car, check out the U.S. News rankings of this year’s best cars as well as this month’s best car deals. For more information on Italian automaker Fiat, see our feature article.

More source:

Chrysler Pushed Into Fiat's Arms - WSJ.com
Obama Announces Chrysler Bankruptcy Plan - NYTimes.com
Chrysler Will File for Bankruptcy, Official Says (Update4) - Bloomberg
President Obama is expected to speak at noon - The Consumerist

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Submited at Thursday, April 30th, 2009 at 4:18 pm on Uncategorized by bradi
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