Now that Chrysler has placed the sensationalism of “Bankruptcy” behind it, the US auto giant has officially announced a strategic alliance with Fiat SpA in order to move forwards and produce what it describes as “a vibrant new company”.
By Gareth Dean
Chrysler initiated discussions regarding a global product alliance with Fiat more than a year ago. In the months leading up to this move, Chrysler had undergone a comprehensive restructuring plan in agreement with its shareholders, but resistance to a number of concessions from some its lenders recently culminated in the company’s decision to file for Chapter 11 Bankruptcy.
In addition to the aforementioned filing, Chrysler will also file a motion under Section 363 of the Bankruptcy code to hasten the approval of the Fiat deal by the Court of agreement and the sale of the Chrysler’s principal assets to the new company. During the restructuring required to fulfil this measure, the US government will provide Chrysler with sufficient debtor-in-possession (DIP) financing. This will allow Chrysler to continue running its day-to-day operations, as well as enabling them to honour warranties both in the US and in overseas markets. Under this measure, the company hopes to emerge as a stronger, more financially stable entity with long-term viability within 30 to 60 days.
So, what is the upshot of Chrysler’s alliance with Fiat SpA? Basically, then two companies will utilize one another’s manufacturing and supplier footprints to open up new markets, as well as producing Fiat powerplants and components at Chrysler manufacturing sites that have recently seen a decline in demand for certain products.
Once the conditions of the aforementioned Bankruptcy filings have been met, the Voluntary Employee Beneficiary Association (VEBA) will own 55 percent of the new company and the U.S. and Canadian governments will own proportionate shares of a 10 perccent stake. Fiat will initially hold a 20 percent ownership stake in Chrysler. Fiat has the option of increasing its ownership stake by an additional 15 percent in three 5 percent increments by meeting the following criteria:
-
- Bringing a fuel-efficient vehicle platform to Chrysler to be produced in the US.
-
- Providing a fuel-efficient engine family to be produced in the U.S. for use in Chrysler vehicles
- Providing Chrysler access to its vast global distribution network to facilitate the export of Chrysler vehicles
Fiat cannot become a majority owner until after all U.S. government loans have been completely repaid.
In addition to CEO Bob Nardelli’s departure from the company once the company has emerged from Chapter 11 Bankruptcy, Chrysler chairman and co-president Tom LaSorda has announced that he is to retire with immediate effect.
So, what effect will these developments have on Chrysler’s South African operations?
Trent Barcroft, CEO, Managing Director, Chrysler South Africa has stated that the Bankruptcy developments will “…have no effect on Chrysler South Africa, or that of Chrysler’s International business operations. Chrysler South Africa and our dealers will continue to sell and service all vehicles, seamlessly honor warranty claims, and pay suppliers.”
