April 30, 2009 4:02 p.m.
The shoe has dropped. The great historic Chrysler automobile company founded in 1925 is no more.Chrysler over the years was responsible for many innovative breakthroughs in design and engineering. As a one time very happy owner of a late 1960s blue Valiant(and which by the way was a great car) which I ran until 1980 or so I have followed this story with great interest. Chrysler is to enter chapter 11 bankruptcy where it will be restructured hopefully along the lines of the agreement reached between the successor company, the Fiat automobile company, the U.S. treasury, the Canadian and Ontario governments, the U.A.W. union and the C.A.W. union and the majority of its former bondholders.
It was the hedge funds and other minority bond holders that had refused the deal on offer to which all of the other parties had already agreed that forces the resort to chapter 11. The new entity that should emerge in a short time from bankruptcy which President Obama and Prime Minister Harper are for now calling New Chrysler will have a complex structure and joint venture ownership model.
According to the text of the Auto restructuring initiative released by the White House at 12 p.m. today the share holders of the new entity will include the U.A.W. which through its ownership of VEBA which will guarantee most of the health benefits of the retirees will receive 55 % of the shares of the new company. Fiat will initially receive 20 % rising to 35 % eventually; the U.S. treasury will receive 8 % and the governments of Ontario and Canada 2 %.
There will be a nine member board of directors with the U.S. government having 4 appointees, the Canadian and Ontario government one, Fiat three and one representing the autoworkers.Fiat will be contributing its intellectual property including its technology and guarantee the introduction of a 40 mpg car for the North American market . It will also contribute its distribution network and access to the next generation of engines. The new entity will receive all the assets of the old Chrysler company for $2 billion under the protection of chapter 11.
The Canadian and Ontario governments are providing a total of 3.77 billion in loans in return for a guarantee that New Chrysler will maintain 20% of their production in Canada.
The U.S. government is providing $4.7 billion in new additional loans repayable over the next 8 years.
All of this however will be dependent upon the bankruptcy court approving arrangements which are opposed by some bondholders representing 30 % of the secure loan bondholders of the old company.The other secure lenders who represented 70 % of the debt were satisfied with a deal that would have paid them 30 cents on the dollar.
If the court approves the new entity will emerge and given the support of the governments, the workers' unions, the workers and the recently revitalized Fiat company the chances are good that New Chrysler will be successful and leave its mark as a European style private enterprise, state and worker owned joint venture in North America which shows the virtues of co-operation and community as opposed to confrontation and greed in the new capitalism. It may indeed become a future model of enterprise for the 21st century global world.
If the court refuses the plan or if once approved it does not succeed the repercussions will be felt far and wide. With the nostalgic view of my old car
in mind and for the sake of all those whose livelihoods are dependent on the success of the new entity I wish them the best of fortune.
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