Chrysler fate in judge's hands
Day 2 for bankruptcy court hearing to decide Chrysler-government plan to restructure troubled automaker.
NEW YORK (CNNMoney.com) -- Court proceedings that could determine the fate of Chrysler LLC continued Thursday after a marathon session that saw the automaker square off with creditors and auto dealers opposing the automaker's government-brokered restructuring plan.
Outgoing Chrysler Chief Executive Bob Nardelli was one on a long list of expected witnesses. The proceedings could continue through Friday.
The hearings, held in a U.S. bankruptcy court in New York, are being closely watched by the U.S. auto industry. A central issue for Chrysler is its planned corporate tieup with Italy's Fiat. The case is also being watched closely by General Motors, which is expected to file bankruptcy within days.
Judge Arthur Gonzalez will decide whether Chrysler may pull its choice assets - its best-performing factories and dealerships - out of bankruptcy and sell them to a newly-formed company called Chrysler Group.
The new Chrysler Group would be controlled primarily by a United Auto Workers union trust, which will own the majority share of 55%. The Italian automaker Fiat will own 20%, at least initially, though it could eventually increase its share to 35%. Minority stakes would go to governments: 8% for the U.S. and 2% for Canada.
In Wednesday's hearing, which lasted well into the evening, a former Chrysler executive described the company's efforts to find a business partner.
Chrysler "went around the world" on its search but only Fiat was willing to strike a deal after last year's economic tumble, said Tom LaSorda, who retired from his position as Chrysler's president when the company filed for bankruptcy on April 30.
LaSorda said Chrysler started looking into a merger or global strategic partnerships in the fall of 2006.
According to LaSorda, Chrysler sought a deal with Volkswagen, Tata and several Chinese automakers, but they expressed little interest in a deal. The company was particularly interested in a foreign automaker that had a strong portfolio of small cars.
When auto sales took a sharp dive last year, Chrysler intensified its search, hoping to get cash as part of a deal to shore up its dwindling capital reserves. But the recent market meltdown killed near-deals with foreign automakers Nissan and Kia.
"We couldn't bring anyone to the altar to bring us five cents," LaSorda testified. "No one would bring us a nickel."
At the end of 2008, Chrysler was not only unable to find a white knight that would give it cash infusion, but Fiat was the lone car company that was even willing to negotiate, LaSorda said.
"I cannot force another auto company to sign a deal with me; Fiat was the only company that submitted a term sheet to us," he said. "We were very lucky to get a player like Fiat."
To keep the company afloat, Chrysler received $4 billion from the Treasury Department in December 2008 and $4 billion more this year. But after many of the company's creditors rejected a debt-for-equity swap to help the company restructure, the Obama administration forced the automaker to seek Chapter 11 bankruptcy protection.
Chrysler is hoping to go in and out of bankruptcy in just one or two months.
Chrysler is seeking to pull its best-performing factories and dealerships out of bankruptcy and sell them to a newly-formed incarnation of itself, called Chrysler Group. The company would then join with Fiat, selling it an initial 20% stake that could go up to 35%.