DETROIT — After months of living on government loans, Chrysler finally succumbed to bankruptcy Thursday, pinning its future on a top-to-bottom reorganization and plans to build cleaner cars through an alliance with Italian automaker Fiat.
The nation’s third-largest automaker filed for Chapter 11 bankruptcy protection in New York after a group of creditors defied government pressure to wipe out Chrysler’s debt.
The company plans to emerge in as little as 30 days as a leaner, more nimble company, probably with Fiat as the majority owner. In return, the federal government agreed to give Chrysler up to $8 billion in additional aid and to back its warranties.
“It’s a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry,” President Barack Obama said from the White House.
Chrysler said it will close all its plants starting Monday and they will stay closed until the company comes out of bankruptcy. At least three Detroit-area factories sent workers home Thursday after suppliers stopped shipping parts over fears they would not be paid.
Chief executive Robert Nar delli announced he would step down when the bankruptcy is complete and take a post as an adviser with Cerberus Capital Management LP, which will give up its 80 percent ownership of Chrysler under the automaker’s plan. Vice chairman Tom LaSorda, who once ran the company when it was owned by the German automaker Daimler, said he would retire.
“A lot of us are scared,” said Steve Grabowski, 33, who has worked at a Warren, Mich., parts stamping plant for seven years and was sent home Thursday. “We knew something like this was going to happen, but we didn’t think it would be so soon.”
Chrysler’s bankruptcy filing is the latest step in a drastic reordering of the American auto industry, which has been crushed by higher fuel prices, the recession and customer tastes that are moving away from the gas-guzzling SUVs that were once big moneymakers.
Lee Iacocca, the retired chairman and CEO who led Chrysler through a government bailout in the late 1970s, said it was a sad day.
“It pains me to see my old company, which has meant so much to America, on the ropes,” he said in a written statement. “But Chrysler has been in trouble before, and we got through it, and I believe they can do it again.”
The government has sunk about $25 billion in aid into Chrysler and rival General Motors Corp.
GM faces its own day of reckoning on June 1, a date the administration has set for it to come up with its own restructuring plan. GM has announced thousands of job cuts, plans to idle factories for weeks this summer and has even offered the federal government a majority stake in the company as it races to meet the deadline.
Debt may be the stumbling block, as it is at Chrysler. GM has asked its unsecured bondholders to exchange $27 billion of debt for a 10 percent stake in the automaker. The creditors balked, saying that would leave them with just pennies on the dollar and they deserve a majority stake if they give up their claims.
When Chrysler emerges from bankruptcy, the United Auto Workers union will own 55 percent of the automaker and the U.S. government will own 8 percent. The Canadian and Ontario governments, which are also contributing financing, would share a 2 percent stake.
Under the deal, Chrysler would gain access to Fiat’s expertise in small, fuel-efficient vehicles. The U.S. automaker eventually wants to build cars that could get up to 40 miles per gallon, far more economical than its current fleet focused on minivans, Jeep SUVs and the Dodge Ram pickup.
In exchange, Fiat would initially get 20 percent of the company, but its share could rise to 35 percent if certain benchmarks are met, and Fiat said Thursday it could get an additional 16 percent by 2016 if Chrysler’s U.S. government loans are fully repaid. Fiat would also get access to the North American market through Chrysler factories and dealerships.
Fiat CEO Sergio Marchionne said he planned to spend time meeting Chrysler employees and touring its plants over the next few weeks.
An American automotive icon in transition: The impact of Chrysler’s bankruptcy
Car buyersPresident Barack Obama reassured owners of Chrysler vehicles that their warranties are still good regardless of the Chapter 11 filing. He also urged consumers to buy American and support the industry. In about 18 months, Fiat models will appear in U.S. showrooms. The Italian company also has committed to building cars in Chrysler factories to be sold as Chryslers. In addition, GMAC Financial Services, the financing arm of GM, reached a deal to provide financing for Chrysler customers.
Workers and retireesThe United Auto Workers and the Canadian Auto Workers ratified cost-cutting deals this week as part of Chrysler’s attempt to avoid bankruptcy. The UAW agreement, which takes effect Monday, includes commitments from Fiat to manufacture a new small car in one of Chrysler’s U.S. facilities and to share key technology with Chrysler. Company pensions are still funded by Chrysler and insured by the government.
SuppliersStruggling suppliers could get help from the Treasury Department’s $5 billion financing-support program, designed to help suppliers keep parts flowing to GM and Chrysler. Chrysler has said it expected to receive $1.5 billion for its suppliers under the program.
The Associated Press
Rise and fall of Chrysler
1925: Chrysler Motor Corp. is formed.
1941: First Jeep is shipped; Chrysler would later merge with Jeep in 1987.
1966: Iconic muscle car Dodge Charger debuts.
1979: Lee Iacocca becomes chairman, leading the company back to profitability with $1.5 billion in government loan guarantees. The pioneering Dodge Caravan minivan and Iacocca’s “If you can find a better car, buy it” ad pitches set the pace.
1998: Chrysler and Daimler-Benz merge.
2007: DaimlerChrysler sells 80.1 percent of Chrysler.
January: Chrysler gets $4 billion in government aid, tied to restructuring approval.
