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About the Chrysler Bankruptcy


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On April 30th, 2009, Chrysler filed for Chapter 11 bankruptcy, also known as restructuring. From the consumer perspective, it will be business as usual: Chrysler, Jeep and Dodge will continue to sell and service cars and honor their warranties.

In the background, a lot will be going on: Because the automotive industry is such an integral part of America's economy and society, special provisions have been put into place even before Chrysler begins the reorganization process.

Quick bankruptcy: The bankruptcy proceedings are expected to take 60 days or less.

Federal financing: Chrysler will be given interim financing by the federal government so that it may continue to operate during and after the bankruptcy proceedings. (The Canadian government will also contribute, although Chrysler's Canadian concerns are not subject to bankruptcy.)

Plant closings: During the bankruptcy proceedings, Chrysler will temporarily shutter its manufacturing plants effective May 4th in order to save cash and avoid saturating the market with cars. Workers will be laid off and paid 80% of their salaries, with funding coming from state governments and Chrysler. Some plants were idled the day bankruptcy was announced due to suppliers ceasing shipments, although suppliers are expected to honor their contracts with Chrysler.

Job cuts: The reorganization will most likely include permanent job cuts, both in manufacturing and administration.

Labor contracts: Although Chapter 11 allows companies to break costly contracts, Chrysler probably will not break their labor contracts as the UAW has just agreed to major concessions.

Dealer reduction and consolidation: Chrysler does plan to take advantage of the contract-breaking provision by eliminating and consolidating dealerships. New dealerships will sell all three brands (Chrysler, Dodge and Jeep) under one roof.

Continued product development: Chrysler has 8 new vehicles scheduled for launch in the next 18 months, and development of those products is expected to continue.

Strategic alliance with Fiat: As a provision of the federal financing, Chrysler must complete a strategic alliance with Italian automaker Fiat (an agreement has been in the works since late 2007). Fiat will get a 20% stake in Chrysler, which will increase to 35% when certain milestones are met, but Fiat may not increase their holdings to a majority until Federal funds are repaid.

Partnership benefits: Fiat will use Chrysler facilities in North America to produce components and vehicles, and Chrysler will take advantage of Fiat's international distribution channels to sell their own vehicles in other countries. In the future, Chrysler will likely adopt Fiat designs for their smaller vehicles. Fiat-designed Chryslers could show up in dealerships as soon as late 2010.

GMAC replaces Chrysler Financial: Chrysler Financial -- a separate company that is not owned or controlled by Chrysler -- will no longer provide financing for Chrysler dealers or buyers. Instead, GMAC, which is owned by Chrysler parent Cerberus Group, will take over.

Nardelli, LaSorda to leave: Chapter 11 does not require a change in management; however Chrysler CEO Bob Nardelli plans to resign after the bankruptcy proceeding. Tom LaSorda, Vice Chairman and President, is planning to retire, and may do so before the bankruptcy proceedings are over.

New board, chairman, CEO: Part of the reorganization involves a new nine-person board of directors. Six of the directors will be appointed by the US Treasury Department and three by Fiat, one of whom must be a Fiat employee. The new board will elect a chairman and will select a new CEO, who must be approved by Fiat.

RELATED: What happens when an automaker goes bankrupt?

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