Chrysler down to the wire
Bankruptcy looms even as Obama signals he'll try to keep automaker alive. Union OKs concessions but some lenders balk at deal to save company.
NEW YORK (CNNMoney.com) -- Facing a Thursday deadline, Chrysler LLC appears on the verge of bankruptcy even as the Obama administration signaled a commitment to keep the troubled automaker alive.
While major lenders have agreed to give up much of the $7 billion owed by Chrysler, some non-bank lenders are balking at Treasury Department demands.
As a result, Chrysler was expected to file for Chapter 11 protection later in the day, according to published reports citing people familiar with the negotiations.
Despite the setback, there are growing hopes that the company will avoid closure and liquidation, as bankruptcy is expected to pave the way for a merger with Italian carmaker Fiat SpA.
President Obama said Wednesday that he was more hopeful than he had been a month ago that the bankruptcy would be swift and would result in a restructured company that is financially healthy. The new company would be controlled by the United Auto Workers union and Fiat.
Late Wednesday, the union announced that its membership at Chrysler had overwhelmingly ratified a concession contract reached between the company and union leadership on Sunday night.
"This has been a challenging time filled with anxiety and uncertainty for our membership," said UAW President Ron Gettelfinger. "Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve U.S. manufacturing jobs and gives Chrysler a chance to survive."
Members voting in union halls at meetings on Wednesday voted in favor of the pact by majorities of between 80% and 94%, depending upon their job classification.
Under the deal approved Wednesday, the union would end up controlling 55% of Chrysler's privately held stock. That stock, which the union is accepting rather than $7 billion in cash it was owed by Chrysler, will be used to cover the future health care costs of 65,000 retired UAW members and their families.
Just hours before the vote was announced, Obama, speaking at a prime-time news conference, said he hoped that a deal could be made between Chrysler and Fiat.
"What we've seen is the unions have made enormous sacrifices, on top of sacrifices they've previously made," Obama said. "You've now seen the major debt holders come up with a set of potential concessions they can live with. All that promises the possibility that you can get a Fiat-Chrysler merger."
30 days to turn it around: Last month, a Treasury Department task force determined that Chrysler was not viable as a stand-alone company. The panel outlined a series of steps the company would have to make to get the $6 billion it said it needed to continue.
In addition to a deal with Fiat, Chrysler was required to win concessions from the unions and get banks and others who had lent the company $7 billion to greatly reduce the debt load.
Expectations had grown that a Chrysler bankruptcy and eventual liquidation would close the business. But Obama said Wednesday the company is likely to survive, no matter how the process plays out in coming days.
"The fact that the major debt holders appear ready to make concessions means that even if they ended up having to go through some sort of bankruptcy it would be a very quick type of bankruptcy and they could continue operating and emerge on the other side in a much stronger position," Obama said.
Still the president acknowledged that any possible deals with creditors and Fiat were not yet final. Talks might continue right up until midnight Thursday, according to an Obama administration official speaking ahead of the press conference.
Fiat could finalize a deal with Chrysler even if the company is in bankruptcy, according to various reports, and may be close to doing so.
Big lenders get in line: On Tuesday, major banks that are among those that have lent Chrysler $7 billion were said to have agreed, to significantly reduce that debt, according to Treasury Department sources.
The UAW has not released details of its new labor pact with Chrysler. But the union's decision to accept privately held stock in Chrysler for the union-controlled trust fund to cover retiree health care was a key concession.
Chrysler has just under 39,000 U.S. employees, 60% below the number of American workers it had at the beginning of the decade. It also has about 9,400 workers in Canada, where 87% of the Canadian Auto Workers union members ratified a separate labor deal over the weekend.
According to a report in the Washington Post, Chrysler Chief Executive Bob Nardelli would be replaced by Fiat management as part of a bankruptcy plan being finalized by Treasury.
The Obama administration, along with the Canadian government, would provide an additional $4 billion in financing while Chrysler is in bankruptcy, the Post reported. The United States would provide another $5 billion in support following a bankruptcy reorganization.
Under this plan, the United Auto Workers union's retiree health plan would get a 55% stake in the company, Fiat 35%, the U.S. government 8% and the Canadian government 2%, according to the Post.
Chrysler creditors would get $2 billion and no equity stake while Cerberus Capital Management, which now owns most of Chrysler, would get nothing, the report said.
General Motors (GM, Fortune 500), which has also received federal help to avoid collapse, has until the end of May to reach deals with its creditors and unions. It proposed a plan Monday that would give its creditors a 10% stake in that company, while giving the government and the union up to an 89% stake.