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April 30, 2009

Today's dramatic duo: Chrysler joins Fiat AND declares bankruptcy!

We've been following the "carpocalyse" for months now, watching to see what would happen with automotive giants General Motors and Chrysler. Today's big news came with twice the jaw-dropping effect, as Chrysler announced that it will merge with Italian automaker Fiat, whie also declaring Chapter 11 bankruptcy.

Every automotive website we follow is talking about it, each with their own spin on the circumstances surrounding this monumental arrangement, which according to President Barack Obama "will provide a new lease on life for Chrysler." Here are short summaries of the most important points, from each of the blogs we follow on this subject.

Automotive_traveler Our colleague Rich Truesdell, over at  has posted a blog supplying many of the details on this transition, explaining that Chrysler, Fiat, and the US Treasury will appoint a new board of directors (with six members to be named by the US Government and three by Fiat), which will then appoint a new CEO to replace current CEO Bob Nardelli after he steps down. According to Truesdell, the US Treasury will provide $3.5 billion in debtor-in-possession financing as well as an additional $4.7 billion upon the company's emergence from Chapter 11.  The Fiat-Chrysler partnership is official; Fiat has already agreed to transfer technology and has also agreed to build engines and cars here in North America. Finally, American taxpayers will be repaid before Fiat can increase its initial ownership stake,  Daimler will give up its stake and contribute to pension plan obligations.

Consumer_reports Eric Evarts at Consumer Reports does an excellent job of describing the new arrangements with Fiat, explaining how "a new company will emerge phoenix-like from the Chrysler Corp. ashes, with its autoworkers' Voluntary Employee Beneficiary Association (VEBA) owning 55 percent... Fiat will initially hold a 20 percent ownership stake in Chrysler (without shelling out one single Euro), which may be expanded as government loans are repaid. In the meantime, the U.S. and Canadian governments combined will have a 10 percent stake."

Evarts tell us that most manufacturing operations will be temporarily idled beginning May 4th, though they are expected to resume in 30 to 60 days once the dust has settled and a new company emerges. Apparently, according to Evarts, the combined merger and bankruptcy comes just a few months shy of 30 years after Lee Iacocca saved Chrysler by winning government loan guarantees, on September 7, 1980. 

The_Detroit_Bureau In his report at The Detroit Bureau,  editor Ken Zino explains the details regarding the new credit arrangement, in which GMAC Financial Services has agreed to provide financing for Chrysler dealers and customers. According to Zino, GMAC Financial Services "has entered into an agreement with Chrysler LLC to provide automotive financing products and services to Chrysler dealers and customers. Chrysler Finance will continue to carry the existing book of business for dealer inventory, but would eventually be liquidated as those loans are paid off. Retail contracts going forward would be handled by GMAC.

Zino explains, "Under the tentative agreement, GMAC will be the preferred provider of new wholesale financing for new Chrysler dealer inventory and has a four-year agreement for "incentivized" retail financing with limited exclusivity."

President Obama explained the rationale for this arrangement, saying "It's now clear that Chrysler Financial -- the institution that finances Chrysler cars and dealers -- would on its own require an unacceptably large stream of taxpayer money to remain viable -- and that's something I refuse to provide." The President continued, "and that is why, as part of this agreement, GMAC, an independent bank holding company that finances General Motors, has agreed to finance new Chrysler sales."

Chrysler-logo Motor Trend's "Motor City Blogman"  Todd Lassa led his story focusing on the possible new product consumers may see as a result of the new partnership, predicting "A Fiat 500 built in Canada, Mexico or the United States may be the first product of the newly minted Chrysler LLC-Fiat Auto alliance."

Lassa explains "Fiat gets 20 percent of Chrysler, initially, and can gain up to 35 percent in 5-point increments if it meets such performance metrics as introducing a Chrysler factory-produced vehicle that gets 40 mpg, provides Chrysler with distribution in various foreign markets and manufactures state-of-the-art, next-generation engines at a Chrysler factory. This is where the Fiat 500 would come in; a 40-mpg version would be likely."

Lassa also claims that "Fiat also is working on a family of inline three-cylinder, gas direct-injection turbo engines that are very compact and make lots of low-end torque. It's meant for models like the Grande Punto. Earlier, Chrysler had considered importing the 500 as a Fiat in its North American dealers by next year, as a 'showroom traffic-builder.' "

Jalopnik Finally, our favorite bad boys over at Jalopnik  shared their own special perspective by pointing fingers at "the ten cars that crashed Chrysler into bankruptcy." Their list of not-so-favorite cars includes the Chrysler Sebring and Chrysler Crossfire; Dodge Dakota and Caliber; Jeep Commander, Compass, Liberty, and Grand Cherokee; as well as the cross-badged Chrysler Aspen/Dodge Durango Hybrid. They reserved one slot for the entire Mercedes lineup, explaining "Frankly, the biggest hit to Chrysler came when Daimler purchased the company and stripped the best parts for the German automaker, leaving the US automaker a husk of its former self. So really, the car or cars that most crashed Chrysler would be the vampires of its German former master."

It's a lot to digest, and certainly we'll be hearing more about it as the business arrangement continues to unfold.

Jody-devere_president_askpatty Jody DeVere
President and CEO

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